Charitable giving expands your practice

By Steve Savant

Ash Brokerage Corporation


Charitable planned giving offers great emotional reward as well as potentially financial reward. It is centered on using charitable tax deductions to enhance the impact of the planning. A great deal of wealth can be transferred with relatively minor after-tax impact to the client’s net worth. And the heir’s after-tax estate can be maintained or possibly enhanced.

The Center on Philanthropy at Indiana University published research on high net worth philanthropy in November 2010. For those interested in serving high net worth clients, it provides some great insight into the actions of the wealthy and how they give. These data can help insurance professionals gain access to new high net worth clients by offering to advise them on planned giving techniques.

The report states that over 98 percent of high net worth clients gave to charity in 2009. High net worth clients mostly sought advice from a professional such as a CPA, trust officer, financial advisor, attorney or charity personnel. The party initiating the discussion was about 90 percent the client and only about 10 percent the advisor.

Therein lays the opportunity for you to get your foot in the door to new high net worth clients. If you have an opportunity to approach a high net worth client, chances are they want to give to charities and they want help. Advisors appear oblivious to this desire to give and the opportunity to serve.

This is a great opportunity to approach high net worth clients, since their advisors are not getting the job done.

People with a net worth between $5 million and 20 million on average gave away $63,000 in 2009. Those with over $20 million gave more than $300,000 away in 2009. In prior years when the economy was better they gave away at least 50 percent more.

We have a great opportunity to show these people how to multiply their gifts with the leverage of life insurance and to do it in a tax favored way.

The bigger life insurance opportunity has to do with wealth replacement trusts. These function like an irrevocable life insurance trusts. There are several situations where people want to give to charities, but also want to leave money to their kids. The WRT serves that function.

One example of this is tax efficient assets left to charities, at death, like IRAs and qualified plans. If the estate is large enough to pay estate taxes, then the retirement plans will trigger an estate tax.

Additionally, the children pay income taxes upon receipt of the retirement plan proceeds. With state and federal income taxes this could be the majority of money in the accounts going to taxes. But by leaving the retirement accounts to the charity there is no estate tax or income tax on those amounts.

The donor can then use non-retirement account asset to set up a WRT to leave tax free income to the kids. The net effect is a relatively small reduction in net worth during life, an equivalent or larger after-tax estate left to the kids, and a major gift to charity.

There are other gifting strategies that lend themselves well to life insurance sales too such as charitable remainder trusts, replacement of CGA gifts and others.