~ An Insider’s Perspective On Marketing Insurance and Trusts

to Charity ~

Henry T. Rubin, JDExecutive Director, Major and Planned Gifts

Albert Einstein College of Medicine212 917 710-2098

hrubin@yu.edu

What 3 Things Do Charities Really Want?

Endowments: to replace lost donor annual revenue for

perpetuity

Operating Income: steady, sustainable sources of annual

revenue

Operating Income: steady, sustainable sources of annual

revenue

What Do Major Donors Want Most?

• To make an “Impact” Gift

• To be Seen as Leaders

• To Reduce Taxes

• To Help Family

• To Establish Legacy

…..the Common Denominator??

Quid pro quo

Psychological, social, emotional,

esteem and control

~ Tips to sell to charity ~

• Sell cash, not deferred goods.

• Make sure your deferred gift will be additive with cash.

• Don’t go through the advancement office or even the President’s office.

• Go through a major board member – and get him to lead the board by example!

• Pay to play to gain credibility

• Join a committee

• Return part of the premium

• Don’t get too sophisticated so no one understands you

• Make certain to your advancement officer and donor that your vehicle will not cannibalize the donor’s annual gift.

Why Insurance is “Such as Awful Charitable Gift” and

other Myths

• “It will cannibalize the donor’s annual gift”.

• “We need current cash”.

• “We’ll have to wait 20 years for the money”.

• “The Board hates it”.

• “We just don’t do it.”

Destroy the Myths!

Show how trusts, insurance and annuities provide cash to charities

Donor Opportunities

Problems Not For ProfitAnswers

Bequests Charity does not have present use of any cash

ACCELERATE BEQUESTS: turn bequest into cash and insurance. Donor gets tax deduction and legacy for less.

Perpetual Annual Gift

Donor can make modest annual gifts, but cannot afford endowment

VIRTUAL ENDOWMENT “endow” with revocable deferred gift; insurance, annuity, bequest, etc.

Roth Conversions

Great idea, but donor must pay significantup front taxes

Cash Gift to charity provides perfect deduction to “absorb” the tax incurred by Roth conversion.

Gift Annuity or charitable remainder trust

Charity has to wait until end of beneficiary’s life before it receives cash.

Apply a portion of annual increased cash to donor for annual cash gifts to charity – and to buy insurance to provide fund to support annual gift forever.

The Charitable Lead Trust:

Apply Historically Low Interest Rates to Dramatically Reduce Estate Tax!

Assumptions:$10,000,000 Lead Annuity Trust21 Years, 3% annually to charity

2 % Federal 7520 Rate as of February 2015

Estate Tax Saved:

SELL CRTKEEP

$100,000 $100,000$100,000 -0-

$100,000

- 20,000 -0-

$80,000 $100,000

5%Annual Income

$40,000

7% AnnualIncome

$70,000

Income Tax Deduction:

$400,000

Estate tax Avoid estate tax

Gift to Charity

Estate tax (Double Tax)

0 Annual Income

The Charitable Remainder Trust

LEVERAGE ASSETS

THAT WOULD HAVE BEEN

TAXED TO BUILD CAPITAL

FOR YOUR FAMILY

(Up to 23% leverage on capital gains; up to 80%

leverage on pensions)

Solution:$100,000 6%

CRT

$6,000 Annual Income

$2,000Personal

Use

$2,000Annual

WurzweilerScholarship

$2,000 Insurance

Problem: Donor seeking security is invested in CDs or Bank accounts yielding almost nothing

$100,000Wurzweiler

Endowment!

The “Spigot” Trust

Have the two life charitable remainder

trust purchase insurance on one spouse, or an

annuity (net income or nimcrut)

Bad for Charities…Good for You

• Charitable gift annuities simply can’t compete with SPIAS, noncharitable indexed, deferred or lifetime annuities

• Many charities are somehow reluctant to offer higher yields in charitable trusts

• How to sell your annuity while becoming the charity’s friend:

• Name the charity as successor or contingent beneficiary

• In lieu of a lower paying charitable gift annuity, contribute cash “spread” from SPIA.

• INDEXED ANNUITIES/QLACs/LTCI – will all help donor make annual gifts easier.

LUMP SUM

CRTKEEP

$100,000 $100,000$100,000 -0-

$100,000

- 80,000 -0-

$20,000 $100,000

5%Annual Income

$1,000

7% AnnualIncome

$7,000Income and Possible

Estate Tax Deduction:

$80,000

Estate tax Avoid estate tax

Gift to YU

Estate tax (Double Tax)

0 Annual Income

The Testamentary Pension Charitable Remainder Trust

LEVERAGE ASSETS

THAT WOULD HAVE

BEEN TAXED TO MAKE

YOUR FAMILY MONEY

(Up to 80% Leverage)

Donor Opportunities

Problems Not For ProfitAnswers

Pensions Bad for Older Donor: Required distributions;High tax money

Charitable Pension “salvage” technique gives donor, family, and charity more revenue.

Supplemental Pensions

Businessman or physician seeks “Supplemental Pension”

Charitable Remainder TrustSupplemental Pension (“nimcrut”)

Insurance Donor may no longer need or desire paying for insurance.

Great vehicle for charities; donor gets tax deduction.Gift of insurance – charity cashes out or sells policy for immediate revenue.

Estate Planning:Single donor has federal $5,430,000 exemption in 2015

How to transfer assets and values

Gift $5,430,000 to children with balance to charity; leave high tax pension to charity; consider Lead Trust

Marketing Insurance and Trusts to Increase Current

Gifts• Accelerate bequest into insurance and current

cash and perhaps double gift.

• Use a CRT to generate more annual cash to donor AND charity.

• Use as a legacy gift to sustain annual gift.

• Use as a stretch gift.

• Promote “virtual endowments” with cash and insurance.

• Lead Trust

• Instead of gift annuity, obtain SPIA, giving a part of additional income to charity.

• Make children “richer” through insurance, SPIAs, indexed annuities, trusts, “charitable Roth arbitragaes, and “supplemental pensions” so you can give more to charity.

“”I WANT TO BE A BENEFACTOR!”

(But I don’t have the money right now)

Using Insurance to Develop “Stretch” Gifts

•Insurance is a way to allow your donors to “stretch” their gifts to meet their charitable goals.

•For example, we were recently presented with a supporter who had gifted/pledged a cumulative $600,000, but lacked the additional $400,000 to become a Benefactor.

•How Do We Make Him a Benefactor??

A Pledge of Insurance

• We enabled him to be recognized as a $1,000,000 Benefactor by pledging just $35,000 in “plus” monies every year. How?

– The $35,000 would be used to purchase a $1,000,000 insurance policy for YU. Since the supporter is over 60 years old, he and the Advancement Officer would get credit for the present value of this gift of insurance – approximately $400,000.

• The $35,000 a year “buys” the donor a “gift” of $400,000 – and opens the door up for him to be considered a Benefactor.

The following circumstances are

most favorable to a “stretch” gift:

• Potential Benefactors who have contributed over $500,000;

• Scholarship donors who would like to perpetualize their gift with a legacy endowment;

• Donors who have established programs they would like to see endowed in perpetuity;

• Aspiring leaders or board members who cannot contribute as much as they wish:

• “Impact” donors and alums who may enjoy broadened recognition possibilities:

• Professionals such as physicians and attorneys having a secure income but limited capital:

• Donors with illiquid assets such as real estate.

How to Give $2,000,000

to Children and Charity

~For Almost Nothing~

Your Pension- or-

Good Money vs. Bad Money~Why the Best Money When You’re Working, Becomes the Worst Money when you Retire ~

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

65 68 70 73 75 78 80 83 85 88 90

To Children Estate Tax Income Tax

The Hero Plan

K id s$ 1 ,0 00 ,0 00

IR S$0

C h a rity$ 1 ,0 00 ,0 00

T h e H e ro P lan$ 1 ,0 00 ,00 0 IRA

K id s$ 20 0,000

IR S$ 80 0,000

C h a rity$0

T h e Z e ro P lan$ 1 ,0 00 ,00 0 IR A

The Zero Plan

Thank you

Misc. Slides

The Charitable Lead Trust

a/k/a,

~ the Jackie Kennedy Trust ~

Transfer up to $20,000,000 to family…

and $6,300,000 to your Foundation…

for No Estate Tax at all.

The Jackie Kennedy Estate Plan

Jackie$40,000,000

Friends

• $600,000 among maids and butlers

• Sculpture to Maurice Templesman; artwork

to friends• Hammersmith Farm to

Step-Brother• $500,000 for each child

of Lee Radziwill

$10,000,000

John Jr. and Caroline

• New York Apartment

• Art

• Personal effects

$10,000,000

Charitable Lead Trust (residual estate)

• Income to Charity

• Principal to Grandchildren

$20,000,000

The Family Limited

Partnership Lead Trust

The “Double Discount Lead

Trust”

DOUBLE DISCOUNT LEAD TRUST

CHARITY

Family

$32,000,000

$20,000,000

$8,200,000

$1,800,000 of credit still available

Charity $8,400,000

$15,000,000

FLP- LT $6,800,000 Deduction Discount

$20,000,000 subject to gift tax

FLP 25% - $5,000,000 Discount

~ More Techniques to Build Capital forFamily and Charity~

1. The Leveraged Charitable Remainder Trust

• Use CRT to potentially generate 500% more income; invest additional income in strategic insurance to generate potentially 500% more capital!

2. The Lead Trust Income Tax Arbitrage

• Use a “defective lead trust” to get a 40% income deduction on money taxed at less than 15%

3. Zero Tax Planning

• Move your estate from children and the IRS to children and charity

4. Using Charitable Trusts As Tax Favored “Super Supplemental Retirement Plans”