Life insurance wealth replacement can be an effective, tax beneficial way to benefit heirs in replacement of an asset redirected to charity.
- Client is insurable.
- Desires to leave a portion of the estate to his/her heirs.
- All other financial needs are covered by outside resources.
- If a portion of the payment from a gift annuity or charitable remainder trust will be used to pay the premium for the wealth replacement policy, consider the following:
- Use conservative estimates when determining the client's capacity to make premium payments.
- A portion of the income received from charitable trusts and gift annuities is taxable. Make sure taxes are factored into the analysis.
- Take into account cash flow issues as well. Income from trusts and gift annuities are typically paid on a quarterly basis, at the end of a quarter. Make sure the client has sufficient funds to cover the first premium payment.
- Income from a charitable remainder unitrust can vary from year to year. Consider how a decline in trust payment amount will affect the client's ability to make premium payments.
- Illustrate dividends conservatively.
- Plan ahead for potential issues in the future related to mental capacity.
- It is sometimes better to issue a policy that is scheduled to be paid-up over a short period of time rather than a policy that requires payments for life.
- Include family members in the conversation.
- Family members might be more supportive of the charitable gift if they understand that wealth replacement insurance is part of the plan.
- Review the health of the policy at least annually once it is issued.
- Life insurance should not be viewed as a stagnant investment. It is better to identify problems early on than when it is too late to make adjustments.
- Ask if the death benefit can expire due to longevity and if so when does that occur?
- Is the assumed rate of return used in the initial illustration still realistic?
- Potential options available to the client if there are problems with the policy:
- Terminate Policy
- Increase Premium
- Reduce Death Benefit
- Cash-in Policy
- Exchange for New Policy
Benefits to you, the financial professional
Thrivent Charitable Impact & Investing will support you with a full range of charitable products and services, and you'll be compensated for your efforts by Thrivent or American Funds.
Our team of charitable gift planners utilizes deep charitable expertise to expand your clients' options and help meet their giving goals. Our collaborative approach will allow you to maintain your current client relationships while we provide the most relevant advice that aligns with your clients' financial priorities.