August 2014 – Life Insurance

The Often-Overlooked Funding Asset

When was the last time, as you were considering a significant gift to your favorite charity, that you looked to your life insurance portfolio for the ideal funding asset?

Probably never. Most people would first see if they had enough in their checking accounts. If that was a little on the lean side, they would check out their stocks and bonds portfolio. After all, appreciated securities still make the ideal gift and you should have some good candidates with the stock market playing hide and seek with the 17,000 bench mark. Not paying out long-term capital gains tax and perhaps being pushed into a higher tax bracket makes giving something away feel even better.

Phases in Life.
People are persuaded to purchase life insurance during the different phases in their lives. During one’s early years a small policy on the child’s life may be purchased by the parents. Getting married is another phase because now you have someone else depending upon you for their financial well-being. Parenthood is the next phase as the family increases in size and the loss of your life becomes even greater as more people look to you for support.

Time passes, responsibilities lessen as the children move on with their own lives and the need for income replacement by life insurance lessens with the increase in the value of one’s estate. Could those life insurance policies bought along the way now serve another purpose, a purpose that supports your life-time values?

The answer is “yes!”

Why Life Insurance?
Why would donors who want to support Ananda’s mission want to use life insurance to fund a gift? In general, the main reasons are:

  • They want to make a substantial gift because they want to make a significant difference in other peoples’ lives.
  • They want to make the largest gift possible with the lowest cost to them personally. That means taking into consideration all aspects of the gift, including the tax savings.
  • They want to find a new use for an asset that no longer serves the purpose for which it was purchased.

For example, Mrs. Kay, a widow and long-time donor, wanted to insure that the programs she enjoyed at Ananda would continue after she was gone. With the help of Janaka’s gift counselor, she identified a life insurance policy which her late husband had purchased on her life but which was no longer needed because their children were grown up and on their own.

She was still paying quarterly premiums on the policy. When she gave all incidents of ownership in the policy, she was able to claim a charitable deduction for the cash value (replacement value) of the policy. She informed the Janaka Foundation that she wanted to keep the face amount of the policy in force and that she intended to send additional contributions with her regular gifts to cover the premiums.

So, what did Mrs. Kay accomplish? First of all, she was able to give a sizable gift to the Janaka endowment fund which would continue to support Ananda’s programs after she was gone. Secondly, she changed the nature of her premium payments from non-deductible to tax-deductible. Thirdly, she sheltered current income with the charitable contribution of the policy and of the extra gift to cover the premium payment.

A pretty favorable outcome for taking a little extra time to tax-efficiently fund a once-in-a-lifetime gift!

More Gifting Ideas
Can you give the same gift twice? The answer is “yes,” if you structure it properly.

For example, Mr. and Mrs. Gee both had $25,000 paid-up life insurance policies. Each designate the death proceeds to fund a $25,000 charitable gift annuity with Janaka, naming the surviving spouse as the annuitant. Depending upon the recommended payout at the time of death, the surviving spouse will receive quarterly annuity payments for the rest of his/her lifetime. Upon the death of the last-to-die, both the life insurance proceeds and the annuity residual will be used to build the Janaka endowment fund.

Mr. Jay, a long-time donor and friend of Ananda, was a very astute investor. He also wanted to “leave a mark” with his blessings, so he funded a $100,000 life insurance policy and gave the policy to the Janaka Foundation with the instructions that he would pay the premiums with gifts to the Foundation. Subsequently, he instructed his broker to transfer appreciated securities to Janaka’s account to satisfy the premium payments plus a little extra to cover the commissions. Janaka then can instruct the broker to sell the stocks in our account so we can pay the premiums.

“Giving the fruit but not the tree” is a rather unique way of using one’s life insurance to ensure a regular stream of support for Ananda. Ms. Tee owned a “participating” whole life insurance policy. She assigned the dividends of the policy to Ananda but kept all rights and ownership of the policy, including the rights to borrow against the cash value and to name the beneficiary of the proceeds. Since policy dividends are essentially a return of unused premiums, the death benefit of the policy was not diminished.

“Family first!” is a policy which most people share – and that’s the way it should be. Naming the Janaka Foundation as a contingent beneficiary on her life insurance policy was the only way Mr. Zee could see himself – at the present time – even considering a major gift to Ananda. If certain members of his immediate family were not living at the time of his death, then and only then would all or a portion of the insurance proceeds be given to support Ananda’s program.

In a similar manner, naming Janaka as a “primary beneficiary of a partial interest” in a life insurance policy means that you recognize Ananda as an important recipient in your estate plan. Doing this costs nothing and makes it an attractive way to make a planned gift.

Conclusion
We believe that most of our donors who generously support Ananda’s work deep down wish they could do more but at the moment do not find it feasible to do so. Although they may wish they could give more, only a few may be able to make a major gift to ensure their life-time values as represented by Ananda.

Life insurance, however, enables a person even of modest means to raise his/her gifting level significantly without affecting savings or slighting other personal responsibilities.

For further information on creative charitable estate planning, contact Parvati Hansen at the Janaka Foundation office – 530-478-7695