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Helping the arts with life income & life insurance gifts

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.comwww.montoyaregistry.com,www.marketinglibrary.net

 Citations 

1 – acga-web.org/donorscorner.html [7/1/10]
2 – pgdc.com/pgdc/charitable-gifts-life-insurance [2/26/08]
3 – irs.gov/pub/irs-pdf/p526.pdf [2009]

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

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