Giving Advice January 2011
 
 Giving Advice - Gifts of Life Insurance

Life insurance has many purposes, beyond the obvious. Effective uses of life insurance exist in charitable estate planning, making perfect economic and practical sense for a number of client situations. Depending on your client's goals, there are several giving options.

The Hartford Foundation recently sat down with William Gombatz, CFP�, ChFC, CLTC, and Stephen Whittemore, CLU, ChFC, CLTC, both of Northwestern Mutual, to hear how they used life insurance to help one of their clients with her income tax, estate tax and charitable planning.
  

Recently, you helped a client leverage her charitable dollars by making a gift of a life insurance policy.  Why did you recommend this strategy to your client?

It was clear from the beginning that our client was interested in philanthropy.  She is actively involved with local organizations and interested in leaving her estate to charity.  She wanted to support organizations she was interested in, but was concerned about giving large sums of money to one or two organizations.  She wasn't sure how to structure the gift.

 We introduced to her the concept of using life insurance to make the gift.  She enabled the Hartford Foundation to obtain an insurance policy on her life, which the Foundation owns and under which the Foundation is the beneficiary.  Annually, she makes tax deductible contributions to the Foundation, which then pays the premiums on the policy.  At her demise, the death benefit will be added to a donor-advised fund that she created last year. 

 Using the life insurance policy to supplement her existing donor-advised fund at the Hartford Foundation allowed her to do something charitable in a significant way and ensure that her wishes will be carried out in the future, following a pattern of giving she will create during her lifetime. 

 A gift like this emphasizes lifetime giving, and allows donors to see the good that their wealth can achieve while they are alive.  Yet it also enables clients to enhance gifts through planning, and possibly give much more than they would otherwise be able to give.

 Also, gifts of life insurance help donors focus by putting a number in front of them in the form of a policy premium.  It can help clients make a consistent commitment to their philanthropic goals.
 
What were your client's motivations for considering this gift?

Our client wasn't necessarily motivated by tax incentives, although that didn't hurt.  She has no natural heirs, and is very philanthropically motivated.

Our client has good intentions, but not a lot of time to research where or how to make charitable contributions.  She knew she didn't want to give large sums to one or two organizations, but didn't have time to figure out which organizations should benefit.  That's where the Hartford Foundation came in.  She now has the ability to learn about local organizations and how to focus her giving.  She is able to engage in the grantmaking, with the guidance and expertise of the Foundation.


 
For information about the various ways of making gifts of insurance (e.g., purchasing a new policy, donating an old one, etc.) and the tax implications, visit www.hfpg.org/givingadvice.

William Gombatz 
William Gombatz

 
Stephen Whittemore
Stephen Whittemore
More Online 

Read Bill and Steve's answers to these questions and more:

> What are some of the advantages that a donor-advised fund at the Hartford Foundation offers over a commercial gift fund?

> How, and when, do you raise the topic of charitable giving with your clients?

> What is the best piece of advice you ever received?

> What is the strangest asset you have ever handled in an estate or estate planning engagement?

 
Life Insurance Will Change the Lives of Area Students

Fontana FamilyVincenzo (Jim) Fontana wanted to honor the memory of his first wife, Marie, and help area students achieve a higher education.  So, in 1997, Jim established a fund at the Hartford Foundation and named the Foundation the owner and beneficiary of a life insurance policy, the proceeds of which will be added to the fund.  The Fontana Scholarship Future Fund will award college scholarships to students throughout the Greater Hartford area as part of the Hartford Foundation's General Scholarship Endowment Fund.
 
In 1997, the year in which he transferred the ownership of the insurance policy to the Foundation, Jim claimed a charitable income tax deduction for the gift equal to the lesser of the policy's fair market value or his cost basis in the policy.  Jim has also made tax-deductible annual contributions to the Foundation over the years, which were used by the Foundation to keep the policy in force. 

Jim had several motivations for creating the fund.  First, he grew up modestly and was only able to attend college because he joined the military, took advantage of the GI Bill, and worked to pay for the extras.  "Knowing the value of a college education, Jim wanted to do something that would help make college more accessible to deserving students in the area." In addition, he wanted to honor his wife, Marie Barrea Fontana, who was a life-long Connecticut resident, successful business woman, and devoted to her church and community.

Despite the fact that Jim has lived in Arizona for a number of years, he continues to be committed to the Hartford region.  Finally, Jim states that he was able to make a much larger gift than he'd originally thought possible by donating an insurance policy that he no longer needed.

Times of Review can Reveal Opportunities 
 

The age of "conspicuous consumption" peaked in 2006.  Recently, as the financial markets have gone into turmoil, many individuals adopted a "wait and see" approach to their financial planning and charitable giving.  Today, these same individuals are realizing that they have accumulated significant amounts of property, both real and personal.  While they want to make a difference in the world around them, they are reluctant to part with cash, given the uncertainty in the financial markets and the income and estate tax arenas.  For these people, gifts of property make sense.

This uncertainty, coupled with impending tax law changes, present an opportunity for you to review financial plans with your clients.  As you work with your clients, consider some of the assets that they can use to achieve their goal of supporting causes they care about, while also easing taxes.
  • Appreciated securities make very effective charitable gifts because the donor avoids the capital gains tax that would otherwise be imposed if the stocks were sold outright.  Additionally, contributors of stock may be able to deduct the fair-market value of the stock up to 30% of their adjusted gross income, with a five-year carryover.
     
  • The Hartford Foundation can accept gifts of real estate, including a primary home, vacation or second home, apartment building, commercial property or undeveloped land.  Contributions of real estate can be structured either as outright gifts, through life income vehicles, as part of an overall estate plan or in such a way that the donor is able to retain the right to live in or use the property.  Gifts of real estate require careful review, but they can offer substantial benefits.
     
  • If your client holds closely-held stock, he or she may be able to use the stock to fund a charitable gift, while benefiting the company at the same time.
     
  • Interests in limited partnerships and limited liability companies may also be used to fund charitable gifts under certain circumstances.
     
  • A life insurance policy can be an excellent tool for charitable giving.  Because the assignment of benefits to the Foundation is irrevocable, your client will want to make certain that the policy has outlived the purposes for which it was originally purchased.
     
  • Tangible personal property, such as antiques, precious metals, art work and certain collections, can make wonderful gifts.  The deduction for tax purposes vary depending on whether or not the property is used by the recipient charity for its exempt purposes, so be certain to check with the charity before making this type of donation.

Finally, for clients who remain uncertain about the economy and tax laws, a bequest in their will or trust can ensure that their charitable legacy will live on forever.

 

To learn more about these and other ways that charitable giving can help your clients, contact Donna Roseman David, senior gift planning officer, at 860-548-1888, [email protected]; or visit www.hfpg.org/tools.




Tax Relief Act Includes Charitable Provisions

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (HR 4853) was signed into law on December 17, 2010. The Act postpones the scheduled sunset of the 2001 and 2003 income tax cuts, reduces the estate tax, extends a large number of expired provisions, and extends unemployment benefits.

In addition to the much publicized provisions, the Act also includes several provisions affecting charitable giving:
  • Tax-free distributions from individual retirement accounts (IRA) for charitable purposes 
  • Enhanced charitable deduction for contributions of food inventory
  • Enhanced charitable deduction for contributions of book inventories to public schools
  • Enhanced charitable deduction for corporate contributions of computer equipment for educational purposes 
  • Special rule for S corporations making charitable contributions of property
  • Provision encouraging contributions of capital gain real property for conservation purposes

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Giving Advice is published periodically by Hartford Foundation for Public Giving, the community foundation for the 29-town Greater Hartford region. Hartford Foundation is devoted to building successful partnerships with professional advisers, donors and nonprofits to enhance the quality of life for people in the community.

To access the Planned Giving Design Center, a free, comprehensive, online resource for professional advisors, visit www.hfpg.org/pgdc.