Insuring the Future
By Shawn C. Mackey CLU
Bob, 37, and his wife Mary have young kids and are not able to make large lump sum donations yet. The ability to make a substantial gift using life insurance appealed to them, and they contribute to it on an “installment” basis of $1,000 annually. The policy insures Bob for an initial face value of $57,807 with Five Acres as both the owner and beneficiary of the policy. In a new policy such as Bob’s, the income tax deduction is equal to the amount of the premium contribution.* Over the years, the face value of the policy grows, and a cash value is created which can be accessed by Five Acres along the way. In 20 years the policy’s face value is expected to be $96,035 and the cash value $36,429. If Bob contributed to the plan until age 65 (installments totaling $28,000) and then lived to age 75, the policy proceeds of $224,144 would be paid to Five Acres income tax-free. Of course, there is flexibility should Bob and Mary want to change their plan later on.
Sam and Allison are in their early 60s and plan to retire soon. After a recent estate planning review they became aware that significant life insurance held in their estate was now creating additional tax liability, so their attorney recommended a gifting strategy. Sam and Allison gifted the majority of their insurance to an irrevocable insurance trust with their children as beneficiaries. They also gave one paid-up policy to Five Acres with a death benefit of nearly $100,000 and a cash value of almost $45,000. Sam and Alison enjoyed not only great personal satisfaction but a current income tax deduction.* (Generally, the value of a gift of an existing policy is limited to the lesser of the taxpayer’s basis in the contract or the policy’s gift tax value, which is roughly its net cash value.) Five Acres will ultimately receive the policy proceeds income tax-free and can also use the cash nearer term if need be.
In summary, life insurance is a flexible charitable giving tools. Donors at all levels can increase their charitable dollars by establishing substantial gifts and contributing on an “installment” basis. The arrangement is private, and no publicity is involved unless the donor desires it.
*Please check with your tax consultant regarding the tax treatment of any gift.
Shawn C. Mackey, CLU works for Northwestern Mutual Life and serves on Five Acres’ development committee.
For information about the scholarship fund or ways to remember Five Acres in your estate plan, please contact Cynthia Nickell at (626) 798-6793 Ext. 2250 or email her.