Tag Archives: life insurance

Don’t Be In The Woods On Planned Giving

There’s a lot that small- and mid-size nonprofits can do to start Planned Giving and have a very respectable program going forward. To kick off your campaign, promote and market bequests, then you might include the IRA rollover and life insurance. 

Avoid Planned Giving Schemes

Avoid courtesy of Thomas Hawk on Flickr.
This is related to my post two weeks ago, “It’s Planned Giving, Not Product Giving.” I said some financial product salespeople don’t have your program’s best interests at heart when they offer to “help.”

Occasionally, those offering specious help come bearing innovative, cutting-edge programs. Most of the ones I’ve seen have life insurance at their core.

Their hallmark is a paper or slide with a score of arrows connecting six or eight boxes. There’s a box for the donor and one each for your charity, the life insurance policy, the trust that owns the policy, the trustees of the trust and the AAA-rated company selling the policy. Arrows are shooting in and out of boxes and around corners.

They’re always convoluted. I ask three times how the programs work, and I can’t regurgitate the explanations 30 minutes later.

A lot of times the plans’ advocates aren’t salespeople, but well-meaning board members or committed donors.

I’ve been in Planned Giving since 1997, as a program director and consultant. I’ve never passed on one of these as something to offer donors. They might be appropriate for huge charities with highly mature programs, though I’m skeptical.

How do you protect your charity and your donors–without sounding ungracious–when offered what I’m describing? Ask two questions.

  1. What other nonprofits are executing the program?
  2. Is there a private letter ruling from the IRS?

I confidently predict the answers you’ll hear.

  1. A and B are looking at it.” – That’s meaningless. You’re looking at it too. In their next pitch meeting, you’ll be “C.”
  2. No” – Without IRS’s imprimatur, I recommend you pass on the ground-breaking innovation.

I don’t feel like a curmudgeon, though you may think I sound like one. In 15 years I’ve seen a lot of bad practices seeking refuge under the Planned Giving umbrella.

Protect your charity from dubious ideas that don’t add value for donors.

It’s Planned Giving, Not Product Giving

Warning courtesy of Martin Deutsch on Flickr
Planned Giving practitioners and theorists stress donor-centered fundraising. But some with an interest in Planned Giving are out to push products, irrespective of whether they’re right for your donors. Don’t let your charity, your program–and your donors–be compromised by these folks.

This has been bothering me for nearly four years, when I started to see it trending upward. The “it” is people who sell financial products calling themselves “planned giving consultants” or something similar.

In fact, they aren’t consultants at all. They’re salespeople. Typically their products are life insurance or commercial annuities, but the menu may vary. Some sell multiple products.

What offends me most about this community of salespeople is that “donor-centered” to them means “Your donors all need the financial product I sell.” It’s just amazing how a seminar led by a life insurance specialist of this ilk will conclude that everyone in the audience needs more life insurance. I’ve been in such programs.

Amazing too that in meetings with a charity’s leadership, life insurance forms the basis of the “planned giving” program these “consultants” pitch. I’ve been in such meetings, screening for self interest to protect my clients from those offering to help the Planned Giving programs I’ve created. This kind of help my clients don’t need.

What I’m describing does not impugn all financial product brokers. Most are ethical and don’t purport to be any type of fundraising consultant. I regularly include a life insurance broker in panel programs I manage for clients.

Life insurance and other commercial financial products certainly have their place in the discussion of estate and retirement plan charitable gifts.

Here’s my point: those who sell the products are not Planned Giving consultants.

Protect your charity’s reputation. Protect your program’s integrity. Protect your donors’ plans. Give a gracious “No thank you” to specious offers of help from people whose real interest is selling financial products.

Outstanding Planned Gift: Life Insurance

On September 15, The Wall Street Journal ran an advertising supplement to commemorate Life Insurance Awareness Month. September is a more holy month than I realized. I presume the 7-page supplement was paid for by the insurance companies with the ads.

I was gratified to see a small portion devoted to life insurance as a charitable gift, and I’d like to riff on that.

Life insurance is an outstanding planned gift: easy for your donors to execute; small dollars can be leveraged for a large ultimate gift (the death benefit, or a portion of it); one policy can provide for family and one or more nonprofits; you may see an increase to your net assets; and, your donors may enjoy an income tax charitable deduction.

Making your nonprofit a beneficiary of an existing policy is easiest. A donor merely asks the insurance company for a change of beneficiary form and includes you on it, noting your legal name and federal tax ID number. (You do publicize those widely, I hope.) When talking to a donor, it’s wise to acknowledge your awareness that family comes first, and also point out that one policy can leave money to loved ones and your organization. You can be named to receive 100% of the proceeds, or a family member can get, say, 70% and you get 30%.

As well, multiple nonprofits can be beneficiaries of the same policy. That comes in handy when your donor balks because they have other charities to support. You’d rather have 10 or 15 percent of something–and share with others–than 100% of nothing.

The beneficiary designation is a revocable gift: your donor can change their mind any time. For that reason, the IRS does not grant an income tax deduction.

For the donor willing to make their gift irrevocable, they can name you as policy owner. Because you’re the owner, you will get the premium notices. Along with the gift you should secure your donor’s pledge to keep making premium payments. When payment notices arrive in your office, you write a polite reminder to the donor, asking them to make payment to you and you turn around and pay the insurance company. When you send reminders, you have opportunities: thank your donor for their gift and show them the increased cash surrender value, as a reflection of the value of the gift to your organization.

Your CFO will like this: the owned policy is an addition to net assets. The ever-increasing (as long as premium payments are made) cash surrender value can be carried on your balance sheet. (Technically, it’s a restricted net asset; the restriction being the donor’s life.)

The premium payments your donor makes earn an income tax deduction because they are made on a policy owned by a charity. We’ve had clients credit and recognize those payments as an annual fund gift.

Your donor also earns an income tax deduction. If they give you an existing policy on which they are still making payments (i.e. not fully paid-up), their deduction is close to the policy’s cash surrender value. Precisely, it’s the interpolated terminal reserve, which is slightly higher than the cash surrender value. Talking to our clients’ donors, I always say they can expect their deduction to be roughly the cash surrender value, and they need to consult their tax advisor. Deduction limitations apply.

If the gift to you is a fully paid-up policy, meaning premium payments are no longer due, the deduction is the lesser of replacement value and cost basis. Replacement value is what it will cost to buy a comparable policy in the market and cost basis is the stream of payments the donor made over the policy’s life. Again, advise your donor to talk to their tax professional.

Life insurance makes a great planned gift. Go out and get some for your nonprofit.