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Helping the Arts With Life Income & Life Insurance Gifts

Your Line to Retirement • January 19, 2015
A great way to assist your favorite theatre, dance troupe, symphony, museum…

The downturn has forced many of your favorite theatre companies, opera companies, symphonies and ballets to amend their programming. They need your help.

Fortunately, private money can make a big difference. Patrons are coming to the rescue of these organizations with life income gifts and gifts of life insurance – financial moves that have perks for donors as well as ensembles. 

Gift annuities. A life income gift, also known as a gift annuity, offers an arts donor some potentially superb benefits. A gift annuity is a simple agreement with an arts organization, by which you make an irrevocable gift of cash, appreciated securities or real estate. In return, you (and/or one other person you select) receive a fixed annual income that the arts organization is obligated to pay to you.
  • Usually, some of this income is tax-free. If you make a cash gift, part of the fixed income payments will be taxed as ordinary income and the remainder will be untaxed. If you contribute securities or real estate that you have owned for a year or more, percentages of the income you receive may be taxed as ordinary income or capital gains, while some of it may not be taxed.1
  • You may also claim an income tax deduction in the year you establish the gift annuity – and if you fund your gift with an appreciated asset, you may eliminate a portion of your capital gains tax.1
  • As a gift annuity can be immediate or deferred (i.e., income payments to you can start this year or in a future year), you have potential for enhanced annual income later in life if a gift is funded today with low-yielding assets.
Life insurance. A gift of life insurance is often welcomed by an arts organization, as it is self-completing – the funding objective linked to the gift is fulfilled when the donor passes away.

If you make yearly planned gifts to a non-profit arts group, you can assign a percentage of your annual donation to a life insurance policy, therefore guaranteeing the perpetuation of your gift.

You can actually make life insurance gifts in several different ways. Here are just a few options:

  • You can gift a life insurance policy you now own to an arts group, donate a new policy you buy, or even have the arts organization purchase a policy on your life and pay the annual premiums (some states don’t permit this last option). You may claim an income tax deduction in the year you do this.2
  • You can name an arts organization as the primary beneficiary of your policy. While that move won’t bring you an income tax deduction this year, it will bring you a federal estate tax deduction for the full amount of the proceeds payable to the non-profit arts group.2
  • You could assign policy dividends to an arts organization. This creates a deduction as dividends are paid. You also have the chance to amplify the magnitude of your contribution: the dividends could buy a new policy, with the arts group as irrevocable owner and beneficiary.2
  • Have you accumulated a great deal of assets in a deferred compensation plan or a supplemental retirement plan (SERP)? If so, you face the chance that your heirs might only receive about a quarter of that wealth after income and estate taxes. Some executives and business owners in this situation have exchanged a SERP or deferred comp plan for a split-dollar life insurance policy, which has let them legally avoid the above-mentioned income and estate taxes and direct substantial wealth to the arts. 
Four things to remember with life insurance gifts. One, if you want to receive an income tax deduction in the year you make the gift, the gift has to be irrevocable – you must surrender ownership of the policy. Two, if you make an irrevocable life insurance gift within three years of your death, the amount of the gift will be included in your gross estate. Three, there is a ceiling on the annual charitable deduction you can take – 30% of adjusted gross income (AGI) for gifts to private non-profit organizations, and 50% if the non-profit happens to be a public organization. Four, remember that you can carry excess deductions on charitable gifts forward for up to five tax years.2,3

With summer and fall being ideal times to revisit your tax strategy, you might want to look into these useful ways of gifting great arts organizations.
Guarantees provided by life insurance and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

These are the views of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. 11739 – 2011/6/1 www.petermontoya.com,www.montoyaregistry.com, www.marketinglibrary.net

 Citations 


This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

A Look at Mortgage Term Life Insurance

By Your Line to Retirement • January 19, 2015
What are the pros and cons of paying premiums for mortgage protection? A potential “helping hand” for a homeowner’s heirs. No one wants to saddle their heirs with the hard choice of paying off an unsettled mortgage or selling or losing a home. A mortgage term life insurance policy can provide relief in such a dilemma. Simply put, this is a term life policy designed for homeowners. If you die owing a huge sum to a mortgage lender, the proceeds from the policy will pay off the note. Why, and why not? The pros and cons of mortgage term life are simply stated. On the plus side, you are paying (relatively) little for a lot of potential mortgage protection, which could be useful if your heirs are in no financial shape to make mortgage payments. On the negative side, term insurance is term insurance. If you live past the term of your mortgage term life policy, no benefit will be forthcoming for all those premiums. You don’t find many fans of mortgage term life insurance in the mortgage industry. Their argument is that a regular life insurance policy might do the job just as well, and give your heirs more flexibility besides. Still, quite a few homeowners want mortgage term life insurance and appreciate its designated purpose. Basic types. The cheapest type of mortgage term life is the level premium/level benefit policy. You can commonly purchase them with 20-, 25- or 30-year terms. As the name implies, the premiums are guaranteed to stay level for the entire policy term, and the benefit amount does not decline with time. You can still find the original kind of mortgage term life policy, in which your premiums stay level but your coverage shrinks as your mortgage balance diminishes. While some banks and insurers still offer these “old school” policies, they are getting scarce. An interesting alternative. Some homeowners decide to get a return-of-premium term life policy instead of a mortgage term life policy. With an ROP term policy, the insurance company will give you all of your premiums back if you outlive the term (provided, of course, that you’ve kept your policy in force). Someone with 20 years left on a home loan could get a 20-year ROP term policy for an amount comparable to their mortgage balance and get all the money paid into the policy back without a tax consequence if they are alive two decades later. 1 That money could be used for any need or objective. So how is this different than private mortgage insurance? Well, PMI isn’t about protecting you at all – it’s about protecting the lender in case you default on your home loan. It diversifies that risk to a third party. Should you look into these options? You might be in a situation in which you really don’t want to risk burdening your heirs with an existing mortgage – especially if they are trying to pay off one themselves. Or, maybe you want a more flexible insurance option that could be used to pay off a mortgage or meet other needs. Talk to your financial or insurance advisor today to explore this a little further.

Don't Make This Mistake with Your 401(k)

By Your Line to Retirement • January 19, 2015
If you have kids, you’re either dreading the cost of college or already dealing with the pressure. Today, the average cost of an education at a public university is $22,286 per year. Private schools cost even more, averaging $44,750 annually. For most people, providing their children with a solid education is a high priority, so it’s no wonder so many parents feel driven to make desperate decisions. Unfortunately, desperation can drive us to make poor decisions with our money. Before you drain your retirement account to pay that tuition bill, stop and consider the ultimate cost to you. You may feel that you can afford to lose a few thousand from your retirement account, but that’s not all you’ll lose. You would also lose the compounding interest that money would have accumulated over the rest of your life, and you may also incur significant fees for withdrawing the money. You could end up struggling once you retire, or being forced to work longer than you had planned. Raiding your 401(k) fund to pay for college can be one of the worst financial mistakes you’ll ever make. Luckily, it’s also a mistake you can easily avoid. You have many other options available to you, such as grants, scholarships, loans, work study programs, and so on. Families who don’t believe they’ll qualify for financial assistance are often surprised – especially if they have more than one family member in college at the same time. Talk to a financial aid counselor at the school of your choice, and you may find that you have more options than you previously imagined. If you start planning early enough, you can prevent an educational funding crisis from ever hitting your family. A 529 savings plan allows you to set aside money for college with taxes deferred. Talk to your financial advisor about the benefits and risks of a 529 savings plan, and protect your retirement fund while giving your children their best start in life.
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