Give to charity without reducing your legacy

Let’s say you are a closely held business owner who sold your business at the height of the market. As a result of your good fortune, you feel an obligation to give back to those organizations that helped make you successful. Your spouse is also very active with volunteer efforts.

You want to make a donation to your alma mater either in the form of real estate or cash. Among your assets is a highly appreciated piece of real estate. You know your alma mater would love to have that land, so you are considering gifting it to the university. You’re aware of the potential estate and tax planning benefits but you’re concerned that this asset will no longer be available to your children. For this reason, you are also considering donating cash to the university instead of real estate. You’ve always wanted your children to have as much as possible to make their lives easier, so you are deciding what the best option is. Below are two donation options to consider.

Term life insurance with a built-in benefit rider for charity

As you are deciding which donation option to choose, looking into term life insurance with a charitable rider can be a great option. In addition to the death benefit, some insurance companies offer a donation component of 1% of the policy face amount (up to $100,0000) to the policy holder’s charity of choice. While the donation is not gifted until you pass away, it is a great way to ensure that you can give back to the charities you hold dear in your heart.

Here are some potential advantages of the built-in benefit rider for charity:

  • There is no additional cost to your life insurance premium. The charitable rider is already built-in when you purchase the policy.
  • The built-in charitable benefit does not take away from what the payout is to your beneficiaries. You can donate to your charity, without the concern that it will reduce the amount your family receives.
  • You can update the charity you would like to donate to at any time. The benefit is flexible to your preferences.

Wealth replacement trust

Before making a donation, you should consider creating a WRT with the help of your attorney and financial representative. Using excess cash flow from other income sources or using other sources of funds, the trust purchases a life insurance policy insuring either you, your spouse or both depending upon how the WRT is structured. Upon your death or the death of your spouse, the insurance proceeds will be paid to the trust and “replace” the assets that went to charity. The trust will use the insurance proceeds for your children’s benefit depending upon the terms of the trust as dictated by you or your spouse.

Here are some of the potential advantages to implementing a WRT:

  • You can make a significant charitable contribution without sacrificing your desire to leave a generous legacy to your children and heirs.
  • Cash gifted to the WRT to pay life insurance premiums allows you to leverage life insurance to provide a death benefit significantly greater than the premiums.
  • The insurance proceeds in the WRT can “replace” the value of the assets donated to charity.
  • Properly designed, the WRT can be fairly flexible in how trust assets are used for the beneficiaries while maintaining a level of creditor protection over the trust assets.
  • Cash gifted to the WRT allows you to leverage the gift tax annual exclusion, lifetime gift tax exemption, and generation skipping transfer tax exemption.
  • The donated property and the life insurance purchased, owned and held in a properly designed WRT, is excluded from your taxable estate.
  • The insurance proceeds in the WRT can be used for estate tax liquidity and other estate planning purposes.
  • You may receive favorable income, gift, estate and generation skipping transfer tax benefits by making the charitable gift and replacing the asset values with the WRT

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2023-163030 Exp. 10/25

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