Although charitable giving fits into the planning objectives of many high-net-worth clients, a lot of planners fail to broach the subject, said Christopher M. Duffy, an attorney with Capital Analysts of New England, Quincy, Mass.
Speaking in a workshop at this years Association for Advanced Life Underwriting meeting, Duffy said, “If you have business planning or other high-net-worth clients, they are potential charitable giving clients. You can leverage your relationship to broaden your practice.”
When discussing charitable giving opportunities with these clients, its important to first address their philanthropic goals. In many instances, these people are already making gifts to charity. Its the planners job to bring up some creative ideas to ensure their clients are “getting the biggest bang for their buck,” he said.
Charitable planning can be used to address a number of different obstacles clients face when developing a financial plan. Income and capital gain taxes can be reduced through creative gifting strategies. Cash gifts to a public charity are fully deductible up to 50% of the clients contribution base, Duffy explained.
Short-term capital gain property and ordinary income property are also deductible, at the fair market value or cash basis up to 50% of the contribution base. “Life insurance is in this category,” he said.
Furthermore, gift and estate taxes also can be completely avoided”everything you give away is completely free of gift and estate tax,” Duffy noted.
But charitable planning must be done carefully, especially when working with life insurance. Duffy warned of some technical wording that may cause problems if not addressed properly. “If you pay premiums to a life insurance company for a policy that is owned by a charity, it may be looked at as a gift for the use of the charity, rather than a gift to charity,” he said. These for the use of gifts limit a clients deduction to 30% of the contribution base.
A better way to structure this type of arrangement, he continued, is to make outright cash gifts to the charity, so the charity can then pay the premium to the insurance company directly.
Aside from the tax benefits, there are several advantages to using life insurance in charitable planning, he said. The life insurance contract provides the charity with a lump sum of cash in the form of a death benefit, he said, and it gives the donor the opportunity to leverage donations to maximize the ultimate charitable gift. And in the event the charity needs immediate access to funds it can access policy cash values.
Some of the gifting strategies Duffy discussed involve making outright gifts of cash or property and split interest gifts.