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Wealth transfer plans designed to benefit you, your families and your charitable organization
By Bill Sapers
Individuals and families who are charitably inclined and also concerned about hefty estate or gift taxes should look no further than charitable concepts to achieve their individual goals.
Beyond just a typical estate plan, charitable concepts allow philanthropic individuals the freedom to continue to support 501(c)3 organizations and also structure their assets so that their heirs will incur lower (or even no) estate or gift taxes*.
If you have a sizeable amount of wealth and are interested in leaving assets to your family members, you are probably aware of the looming estate taxes and are concerned about how it will affect your heirs when you pass away. Many people who fit into this mold ask themselves questions like, “Will estate taxes prohibit me from leaving as much as I really want to my children or heirs?” or “Should I decrease the amount of my charitable giving now so that I can ensure my heirs have all that they need when I’m gone?” Did you also know that your current charitable nature can actually be a solvent to questions like these?
For three generations, both the Sapers and Wallack families have made it a personal mission to support various non-profit agencies. In 2007, Sapers & Wallack decided to officially form a Charitable Concepts division so that the firm could expand their impact through working with charitably inclined clients and enable the clients to stretch their own support to the organizations in which they believe.
The Charitable Concepts division is intent on designing plans that produce income through investment and life insurance products that will enable the client to make donations that are two to three times as large as they normally could contribute, while preserving principal. This not only enables the individual to make a more significant gift to the charity of their choice, but it also relieves the pressure of preserving the principal of their investment to be able to protect their own future and that of their family.
When people who are already charitably inclined and want, as most of us desire, to leave behind wealth for their children or grandchildren, all they really need is a charitable strategy to help them continue to do this and be able to move their assets without their heirs paying estate or gift taxes.
A Charitable Lead Annuity Trust (CLAT) concept is one of the many strategies that can help people continue to contribute the same amount to charity each year and still leave heirs the amount desired. In addition, the individual receives a tax deduction for it all today.
Being charitably inclined and possessing a desire to leave behind wealth to your children doesn’t have to take a serious toll on your estate, it just needs proper planning.
By establishing a CLAT, one can use the assets from the annuity to make the charitable gifts that they desire. For example**, an individual who had a $20 million estate was worried about the 45% estate tax he would have to pay to leave assets to his children and grandchildren. The individual was already very generous in his annual giving; his donations added up to about $150,000 annually through his SubS Corp and his own personal checking accounts. The individual had an annual taxable income of $2.4 million per year and each year, incurred large income taxes.
By establishing a CLAT, this individual can use the assets that now are throwing off the $150K contributed to charity, and contribute these assets to the CLAT ($2.5 million at 6%). If the stream of payments is for 21 years, the present value of the gift to charity is $2.5 million. Thus, at the end of 21 years, the $2.5 million (or whatever it is worth at that time) goes to his heirs free of all estate or gift taxes.
During the 21 years, the 6% income or $150k goes into a Donor Advised Fund so the individual can determine how much is allocated to specific charities.
By establishing the CLAT as a grantor trust, this individual also receives a tax deduction (gift to charity of $2.5 million, which he will apply to reduce taxes this year and the next five years, saving 36% – 40% on the $2.5 million). By investing the $2.5 million in tax free municipals and purchasing life insurance, the individual can hope to withdraw the 6% each year without having any taxable income, while preserving the principal amounts.
At Sapers & Wallack, we know that charitable giving makes good sense, but we can help you make it an even more enticing idea when partnered with a strategy customized to your own situation and charitable interests.
Bill Sapers is the Chairman at Sapers & Wallack and is a recipient of many awards recognizing his standing in the insurance industry and his philanthropic efforts. He presently serves as a member of the Board of Overseers of Beth Israel/Deaconess Hospital, is a member of the Executive Board of Combined Jewish Philanthropies of Boston, is an Honorary National Director of the Anti-Defamation League and past Chairman and current Executive Board member of the New England Chapter of the Anti-Defamation League. Bill Sapers was also Vice Chairman and Board Member of Roxbury Community College Foundation. If you are interested in learning more about Charitable Concepts, please email Bill at wsapers@sapers-wallack.com.
* Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. Federal tax advice contained in this communication, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein.
** This case study is based on an actual client situation but is meant for informational purposes only. The case study is in no way intended to be used as a primary basis for insurance or investment decisions. Similar results are not guaranteed and will vary based on the individual client situation. Clients should consult with their own financial, tax, legal, and accounting advisors before implementing any insurance or investment plan. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security or investment product.