Interested in Charitable Giving? You May Want a Wealth Replacement Trust!

Jim Lorenzen, CFP®, AIF®

Charitable giving is a way you can truly leave a legacy beyond our own family; However, believe it or not, few among what many would call the ‘mass affluent’ ever give much thought to charitable giving.  Often, they simply feel they don’t have enough money; however, many of these same people are often sitting on highly appreciated assets such as real estate.

What many fail to realize is there can be significant tax advantages in charitable giving.  When money is tied up in real estate and securities, having a tax-advantaged exit strategy can be helpful.

If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

Example:   Alfred purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If he sells the stock, he must pay capital gains tax on the $75,000 gain.   But, Alfred can donate the stock to a qualified charity and, in turn, receive a $100,000 charitable income tax deduction.  When the charity then sells the stock, no capital gains tax is due on the appreciation.  How good is that?

But what happens to Alfred’s family who will be deprived of those assets that they might otherwise have received.

A popular solution:  Life Insurance.  Why is this popular?  How do you do it?  Read on…

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust (ILIT) – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift.

Premium payments can come from the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity.  Alfred simply makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums.   At Alfred’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

Not a bad deal!

Life Insurance has a number of uses; but, before shopping, it pays to know what you’re actually shopping for!  To help understand life insurance design, you need to understand your priorities.  You might find this simple tool helpful.

What’s Your Focus Life Insurance Priorities Tool

If you would like help, of course, we can always visit by phone.

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

How Will Rising Interest Rates Affect Stocks?

iStock Images

Jim Lorenzen, CFP®, AIF®

… and what do rising interest rates (and inflation) mean to your long-term success?

Maybe less than you think… or is it maybe more than you think.

We don’t really know, do we?   Planning isn’t about what we know; if it were, we’d all just go with our guts and get rich!  Planning is about what we don’t know.

But we do have indicators.   Past performance is no guarantee the future will repeat – we know that; but, maybe – just maybe – it can provide a little idea of how markets have reacted to rising interest rates in the past.  Here’s a chart from Bloomberg; I apologize for the fuzziness.

As you can see (I hope) since March of 1971, there have been 21 periods of rising interest rates.  Of those 21 periods, the S&P declined only 5 times and the largest decline was around 5.5%.   Comforting?  Well, good reading  anyway.

The problem, of course, is we’re dealing with real money and real people’s lives.

It pays to have a ‘back-up’ in your financial plan that can help ensure there’s a ‘late life income’ even if everything else falls victim to the incompetency of elected officials who’ve become self-anointed economic experts.

For that reason, I thought you might enjoy a report I’ve put together about how to create a ‘late life income’ by adding another component to your investment diversification strategy.

I think you might enjoy it -it’s based on an actual case study.  You can access your Late Life Income report here.

Enjoy!

If you would like help, of course, we can always visit by phone.

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.