In our work and personal lives, we are deeply connected to a continuum of charitable organizations, from those non-profits financially bootstrapped, but operating with passionate cause, to capital campaigns and multi-million-dollar endowments directly linked to educational and religious organizations, the arts, medical research and facilities, and any number of local, national or international causes. We understand that with financial wealth, a deeper philanthropic desire often rises to the forefront. For many, it truly is more blessed to give than to receive. However, when we engage with you and your charitably-minded clients and their legal and tax advisors in mapping out an overall charitable plan, they can give wisely and more freely, often maintaining or even enhancing family wealth transfer in the process. We call this charitable wisdom.


Combining charitable giving with properly structured life insurance may maintain and even increase personal wealth when addressing these challenges:

  • When the desire is to increase income, and a portfolio is heavily weighted in an appreciated stock, diversifying the portfolio often is not a tax-favored option. To avoid paying taxes on any investment gain, the stock can be transferred to a Charitable Remainder Trust (CRT). The CRT can then sell the stock as needed to make income payments to your client without taxable gain recognition. A portion of the income distributed can be used to purchase ILIT-owned life insurance on the life of your client, replacing the value of the asset at a discount for heirs.
  • If your wealthy client has a strong desire to benefit a charitable cause while living and wants to protect wealth from transfer taxes, a non-grantor Charitable Lead Trust (CLT) can be an effective tool. It effectively can reduce the value of a taxable estate, transfer an asset to heirs at a gift-tax discount, and provide a sizeable gift to charity. A CLT provides income distributions to the charity, not the donor, for the term of the trust, with the trust balance transferred to heirs at the end of the trust term. An asset transferred to a CLT in a low interest rate environment can be particularly attractive, since it is viewed as an immediate and completed gift based on the present value of the trust balance, net of income payments made to the charity. The trustee of the CLT may also wish to use a portion of the trust assets to purchase a life insurance policy on your client’s life to potentially increase the amount heirs receive at the end of the CLT term.
  • A simple technique to leverage the impact of a current charitable gift is for your client to gift an amount equal to the annual premiums due on an insurance policy the charity owns on her life. Your client’s cash gift is generally tax deductible, within stated limits. The charity must own the policy outright, since if it is only named as the beneficiary of a policy, no deduction is allowed. The charity can also work with a lender to finance the annual premium, which serves to further leverage the cash gifts received.
  • A sale of a business, receipt of a large bonus, lottery winnings, or perhaps taxation of stock options may bring in substantial income in a single year. Transferring the proceeds to a grantor-established CLT may provide an immediate offsetting income tax deduction. Often the trustee of this grantor CLT will then split the trust assets and purchase a single premium immediate annuity (SPIA) from one company to guarantee the charity the income promised, while using the remaining trust principal to purchase life insurance on the donor from another company, leveraging the amount transferred to heirs.
  • A tax-deferred annuity or individual retirement account (IRA) left in your client’s estate at death is subjected to heavy taxation, including income, estate, and potentially, generation-skipping tax (GST). Distributions taken from these unneeded assets can fund a tax deductible charitable gift, offsetting the income taxes resulting from the withdrawal. Furthermore, ILIT-owned life insurance, outside your client’s taxable estate, can be used to replace this inefficient asset for heirs.
  • If your client prefers to dictate where his wealth goes, he likely is more interested in directing funds to a charity and family rather than the government.  By gifting an asset to charity, the asset and all its future growth are removed from his estate permanently. Your client can then use the tax savings from the gift’s deduction or income provided from the charitable trust to fund life insurance owned by an ILIT, which remains outside his estate.

    It is generally a dynamic combination of objectives that has driven life insurance solutions within the context of charitable planning. Charities need contributions and endowments for long-term sustenance. Wealthy individuals may be singularly motivated by the personal satisfaction that comes from giving to a favorite cause, educational facility, hospital, or any number of non-profits, but have increased motivation when considering the inherent tax benefits. When insurance is layered into the context of this planning, family wealth can also be preserved for the next generation, resulting in a domino effect to repeat the strategies again and again.


    Comprehensive Charitable Planning – Client Guide, Advanced Markets, John Hancock, 2013.