Charitable giving with RMDs

By Steve Savant

Here is a true and fascinating story narrated by Ken Davis, CLU, ChFC, CFP, CPA; taken from an interview with Ken.

I offered to serve on a finance committee for a charity. I offered to help them establish a planned giving sub-committee with the mission to teach our members how to effectively increase their gifts to the charity by reducing income taxes. I just wanted to help out.

I figured that after people got to know me and saw the things I did for the charity, I might get some business out of it. However, I was careful not to aggressively pursue business.

I offered to teach a seminar on passing more IRA money to kids and charities with a couple of planned giving ideas thrown in to build interest in giving to the charity. After the program, one of the participants approached me and told me he had $40,000 in required minimum distributions due this year. He told me he wanted to use it to create an endowment fund for the charity. In particular he and his wife wanted to fund a particular program that the charity put on each year with their endowment money.

I suggested they fund a second to die policy. We illustrated a 10 pay $40,000 a year policy with a medium term guaranteed death benefit and high cash value for flexibility. This provided flexibility if they were unable to keep funding the program for the 10 years.

They bought $1 million in face value that was illustrated to grow to $1.7 million at their life expectancy.

I told them to pay the money to the charity and then direst them to buy the life policy on their lives. The clients got a $40,000 deduction to offset the IRA distribution income. We made sure their tax advisor ran a tax projection so there would not be any surprises.

Think of it, $400,000 in payments over 10 years for $1.7 million in gifts to the charity at death. The client was delighted with the results and the tax deductions to offset the IRA RMD.