Premium Finance Giving

What is Premium Finance Giving?

Premium Finance Charitable Giving is a financial strategy that allows individuals or organizations to leverage life insurance policies to enhance their charitable contributions. This approach typically involves the following key components:

  1. Life Insurance Policy:
    1. A donor takes out a life insurance policy, often with a significant death benefit, where the charity is named as the beneficiary.
  3. Premium Financing:
    1. Instead of paying the premiums out of pocket, the donor may use premium financing, which involves borrowing funds to cover the cost of the insurance premiums. This can be done through a bank or a financial institution that specializes in premium financing.
  5. Tax Benefits:
    1. The donor may receive tax deductions for the premiums paid, depending on the structure of the arrangement and the applicable tax laws. Additionally, the death benefit paid to the charity can be tax-free.
  7. Charitable Intent:
    1. This strategy allows donors to make a larger charitable gift than they might be able to afford outright, as the life insurance policy can provide a substantial benefit to the charity upon the donor's passing.
  9. Wealth Transfer:
    1. Premium Finance Charitable Giving can also be a part of a broader estate planning strategy, allowing individuals to transfer wealth to their heirs while also supporting charitable causes.

This approach can be particularly appealing to high-net-worth individuals looking to maximize their philanthropic impact while managing their cash flow and tax liabilities effectively. However, it is essential for donors to consult with financial and legal advisors to ensure that this strategy aligns with their overall financial goals and complies with relevant regulations.

Types of Premium Finance Giving

Here are some common types of premium financed charitable giving:

1. Premium Financing for Charitable Gift Annuities (CGAs):

  • Individuals can finance the premium payments for a charitable gift annuity, which provides them with a fixed income for life while also making a substantial gift to a charity. The financing allows donors to maintain liquidity while still benefiting from the tax deductions associated with the gift.

2. Premium Financing for Charitable Remainder Trusts (CRTs):

  • In this arrangement, donors can finance the contributions to a charitable remainder trust. The trust pays income to the donor or other beneficiaries for a specified period, after which the remaining assets go to the designated charity. Premium financing can help cover the initial contribution to the trust.

3. Life Insurance Premium Financing:

  • Donors can use premium financing to pay for life insurance policies that name a charity as the beneficiary. This allows the donor to leverage their assets and provide a significant future gift to the charity without depleting their current resources.

4. Donor-Advised Funds (DAFs):

  • Some donors may choose to finance contributions to donor-advised funds, allowing them to make a larger initial contribution while spreading out the payments over time. This can provide immediate tax benefits while allowing the donor to recommend grants to charities over time.

5. Charitable Lead Trusts (CLTs):

  • In a charitable lead trust, the donor can finance the contributions to the trust, which pays income to a charity for a specified period before the remaining assets are distributed to non-charitable beneficiaries. This strategy can help reduce estate taxes while supporting charitable causes.

6. Leveraged Giving Strategies:

  • This involves using borrowed funds to make charitable contributions, allowing donors to maximize their giving potential while preserving their capital for other investments or expenses.

7. Philanthropic LLCs or Partnerships:

  • Some donors may establish limited liability companies or partnerships to pool resources for charitable giving. Premium financing can be used to fund these entities, allowing for larger collective contributions to charities.

Each of these strategies has its own set of benefits, risks, and tax implications, so it's essential for donors to consult with financial advisors or tax professionals to determine the best approach for their individual circumstances and philanthropic goals.

Benefits of Premium Finance Giving?

Here are some key advantages of Premium Finance Giving:

Benefits for Donors:

  1. Leverage Contributions:
    1. Donors can make larger gifts than they might be able to afford outright by financing the premiums of a life insurance policy. This allows them to support their chosen charities more significantly.
  3. Tax Advantages:
    1. Premium payments may be tax-deductible, depending on the structure of the gift and the donor's tax situation. Additionally, the death benefit paid to the charity is generally tax-free.
  5. Estate Planning Benefits:
    1. Donors can use premium finance giving as a strategy to reduce their taxable estate while supporting charitable causes. This can help in estate tax planning and wealth transfer strategies.
  7. Potential for Cash Value Accumulation:
    1. Some life insurance policies accumulate cash value over time, which can be accessed by the donor if needed, providing additional financial flexibility.
  9. Philanthropic Legacy:
    1. This method allows donors to create a lasting legacy, ensuring that their charitable intentions are fulfilled even after their passing.

Benefits for Charitable Organizations:

  1. Increased Funding:
    1. Charities can receive larger donations than might be possible through traditional giving methods, enhancing their ability to fund programs and initiatives.
  3. Predictable Future Gifts:
    1. Life insurance policies provide a guaranteed future payout, allowing organizations to plan their budgets and programs with more certainty.
  5. Attracting Major Donors:
    1. Offering premium finance giving options can attract high-net-worth individuals who are looking for innovative ways to support their philanthropic goals.
  7. Enhanced Donor Relationships:
    1. Engaging in premium finance giving can strengthen relationships with donors, as it demonstrates a commitment to helping them achieve their charitable objectives.
  9. Diversification of Funding Sources:
    1. This approach can help charities diversify their funding sources, making them less reliant on traditional fundraising methods.

Premium finance giving can be a powerful tool for both donors and charitable organizations, providing financial benefits, tax advantages, and opportunities for impactful philanthropy. It is essential for donors to consult with financial and tax advisors to understand the implications and structure of such gifts effectively.

Why Give With Legacy?

  1. The Legacy Family
    1. The Legacy Family is a group of independent charities and organizations that work together to help organizations, families and individuals maximize their positive impact on the world and communities around them. This family of charities enables us to solve your most complex problems.
  3. Expertise
    1. Legacy has been helping donors execute Premium Finance gifts for over two decades. Legacy has facilitated hundreds of millions of dollars being donated via Complex Giving vehicles. We have the knowledge and experience to make your dream a reality.
  5. Flexibility
    1. Legacy specializes in doing the custom and complex giving that most other charities cannot or will not handle. Through a combination of our concierge approach, The Legacy Family, and our expertise, you won't find a better team than us to help accomplish your dreams in a competent and compliant way.
  7. Dynasty Giving
    1. Legacy Funds can be passed down to successors generation after generation binding the parents and the children together in a chain of charitable giving. At Legacy we don't just plan for the next generation to be involved, but rather the next 10 generations or more. With no required sunset clause, your family can help make the world a better place generation after generation.

How do I Start?

Premium Finance Giving requires custom tailored solutions provided by Legacy because every Donor is unique. Please reach out to discuss your specialized needs so we can make an action plan to achieve your goals.

Get Started Giving