Planned Giving Program Makes Good: $20 Million Insurance Gift!

My next blog post was going to be about the high % of bequests among mega-gifts as reported by the Chronicle of Philanthropy, but the gift discussed in the following article trumps them all:

Kudos to my friend, Josh Rednik, the Executive Director of the Jewish Community Foundation of MetroWest, for his involvement in this one!

The question often comes to me about whether “Insurance” gifts are worth pursuing.  Well, there are a lot of scam-like proposals out there – just check my blog archives on the topic.  But, there are legitimate insurance gifts as the linked article so glaringly shows us.  Your job as a fundraiser is to be knowledgeable enough to see and pursue opportunities – and always have a trusted insurance volunteer on-call to guide you!


Life insurance appraisals – part 2

This post is a follow-up to my previous post on a sticky life insurance situation.  I wanted to let anyone who reads that post to know that there are two specialist appraisers who can help you and/or your donor obtain a qualified appraisal in these situations.  One of the following two I completely trust because I know he is an honest guy who runs an honest business – and the honest guy vouched for the other guy who offers the same service.  Here are their websites:

Obviously, my posting of these two websites in no way guarantees anything – donors and their attorneys need to make their own decisions. But, it is hard for me to believe that you will find a better appraiser for any charitable gift involving life insurance than these two.  Beware – most appraisers of life insurance do their appraisals for estate tax purposes – with the opposite goal of reducing the value included in an estate or as a  taxable gift.  Also, these other appraisers may not be fully aware of the special rules for obtaining a charitable contributions.  One of the best attorneys in the planned giving world has told me several times that he has never see a properly done qualified appraisal.  That is not to say the gifts didn’t stand up to IRS scrutiny – they may very well substantially conform enough to win.  But, any IRS involvement is bad for everyone involved – particularly the charity that steered the donor.

Insurance gifts never simple

During my general planned giving training sessions, I usually include only one or two slides on life insurance.  My main goal on this topic is to get across that there are many, many variables that go into life insurance policies and many versions, and the charity needs its own objective expert to help assess a proposed life insurance gift.  Sorry, but your typical insurance salesman/financial adviser does not always have the charity’s or even his client’s interests as a priority.

Here is the story that inspired this post:

As will typically happen, I got a call/email.  It was about a “paid-up policy” recently established by a donor with the donor as owner and the charity as the named beneficiary.  Now, the donor wants to go ahead and transfer ownership and receive an income tax deduction for the initial “balloon” payment on the policy – presumably the first and last payment on the policy.

Putting aside questions like what type of policy is it (presumably a universal life policy) and whether there is truth that it only needs one payment, this gift scenario shouldn’t be too hard to figure out.  Think again.

To the charity’s credit, this gift was set up without their knowledge.  Because, if they had come to the charity first and asked me how to do this in the easiest way, I would have said that the policy should be owned initially by the charity and the donor would make a fully tax deductible contribution that would cover the one time premium.  Easy, no appraisals or concerns about how to value, etc..

But, now we have a problem.  Instead of a straight forward gift of cash that will be used to pay the premium,we have a gift that requires a qualified appraisal.  Generally, the deduction for a gift of a paid up or partially paid up life insurance policy is the LESSOR of the cost basis (premiums paid) or the cash surrender value.

Yikes.  Let’s say this is a $1 million life insurance policy with a one-time premium of $300,000.  I don’t know the cash surrender value but I am sure that with the insurance saleman making a nice commission on that initial premium, it will be a lot less than $300,000.  Turns out that an appraiser gave us a rough estimate of a deduction of around $240,000 in this case.  That is $60,000 in deduction lost because an unknowledgeable insurance agent didn’t know what he was doing.  Probably worth $20,000 or more in real cash to this donor.

Second major challenge with this scenario is the qualified appraisal.  Gifts to charity of $5,000 and up of other than cash or marketable securities require a qualified appraisal.  Too much to cover in a blog post but needless to say a major hassle and the greatest potential point of problems for donors.  To complicate matters here, we need to find someone who specializes in appraisals for charitable deduction purposes of life insurance policies (as opposed to ones done for estate planning purposes which have different requirements and different goals).

In this case, the charity had the name of a firm that specializes in insurance gifts, their appraisals, etc… Very fortunate and hopefully the behind the scenes mess won’t reach the donor and dampen their good feelings about the very generous gift that was made.

Part 2 on this post will be after the appraisal is done and will review how the deduction was calculated.  I made it sound very simple but if you look into the topic, you will find various versions of approaches.

So funny I couldn’t resist!

For those who have followed this blog for a few years (or know me professionally), you know that I really have a “bone to pick” with all of the silly insurance schemes thrown at charities.  And, then they all collapsed like we warned.  Read this short article and get a good laugh at the last sentence in bold:

Couple file fraud lawsuit against insurance magnate Barry Kaye

April 05, 2010|By Jane Musgrave, The Palm Beach Post

Impressed by Barry Kaye’s famed oratory skills at one of his free seminars on how to die rich, David and Aileen Epstein handed the longtime Boca Raton insurance mogul the keys to their financial planning, according to authorities.

Before the part-time Boynton Beach couple had straightened out the mess Kaye and his son, Howard, had made of their hoped-for legacy, they had lost more than $500,000, according to a lawsuit filed in Palm Beach County Circuit Court.

In addition to recovering their lost money, they may seek punitive damages against the once high-flying father and son life insurance dynamos for fraud, according to the suit.

The lawsuit is the second the two Kayes have faced since their life insurance empire collapsed, causing Florida Atlantic University to strip the senior Kaye’s name from its College of Business. His name was put on the school when he pledged $16 million, the largest gift in school history. To recognize him for the $5 million he did donate, school trustees created the Barry Kaye Program of Risk Management and Insurance within the business school.