Charitable Giving Through Life Insurance
This
month's financial planning article focused on meeting your life insurance
needs. If you are young and just starting a family, you might have realized
that you need more insurance than you presently have. But if your children
are grown and your nest egg is secure, you might find yourself with more
insurance than you need. If this is the case, what are your plans for it?
You could maintain the policy. Or you could eliminate some of your insurance coverage and invest the savings. For some policies, dropping the coverage is easy and comes with no cost, but canceling other policies might have tax consequences. If you have a permanent policy (see below) that you acquired when you were young, you might be paying low premiums for a substantial amount of coverage, so you'll want to think twice before surrendering the policy.
There is another option that won't break your bank: Use your life insurance to leave a lasting legacy for your favorite cause.
First, let's review the basic types of life insurance offered in the marketplace:
The simplest type of policy is term insurance. It is also the cheapest. With this, you pay your premium and if you die while the policy is in force, your beneficiary gets the face value of the policy. There is no cash buildup and if the policy lapses, you get nothing. The drawback to term is that it typically expires on a periodic basis and the premium increases. The older you are, the more expensive the policy will be.
Whole life is a policy that lasts as long as you pay the premium. The premium is fixed on the date of issuance and never increases or decreases. Whole life will build up some value and the earnings will accumulate tax free.
Variable life, like whole life, is a permanent policy. Unlike a whole life policy, though, the value is not fixed. The value of the cash buildup depends on the investment results of the policy's investible assets.
Universal life and variable life policies are also permanent products that allow you to build up a nest egg but are a bit more flexible than whole or variable products.
If you choose to reduce insurance benefits available to your heirs in favor of a charity, your tax results will depend on the type of policy you use. Here are a few options you should consider:
You opt to purchase a straight term policy and name a charity as your beneficiary. If you want to receive a tax benefit for your efforts, the charity will obtain the insurance on your life and you will make periodic contributions to pay for the cost of coverage (the premium). Unless you relinquish all rights and ownership, you will not receive a charitable deduction.
Now back to the term example. It's fairly simple. The charity will purchase an insurance policy on your life. You will make a charitable contribution to them to cover the premium and you will receive a deduction. When you die, the charity will receive the proceeds of the death benefit.
If you have a policy that you no longer need and it has accumulated a cash value, you can contribute that policy to a charity of your choice. If you do so, you will not necessarily get a deduction for the full cash value. In general, you will receive a deduction equal to the premiums you have paid or the value of the policy, whichever is less. In order to maximize the value to the charity, you would then make annual contributions to pay the premiums as they come due. If the cash value is adequate, the charity can even use that to pay for the premiums.
The drawback to the outright gift of a valuable policy is that you lose all control over it and have no access to the cash value if you need it. The solution is to name a charity as your beneficiary but retain ownership of the policy. This will give you access to the cash, but you will not be able to take a charitable deduction for the premiums you pay.
The ability to leave a substantial legacy to a charity is not just for the super wealthy. With a little planning, you can provide substantial benefits to a charitable cause by using life insurance. The foregoing ideas are just a few of the many techniques available when using life insurance. If you are interested in helping your favorite cause through an outright gift or as part of a planned giving strategy, call us to discuss some of the ways you can use insurance to benefit a worthy cause.
Small Business Advice - Getting the help you need
One of my professional functions is to serve as a small business advisor. I give advice on income taxes, product pricing, employment issues and anything else that relates to a business. Questions can often be handled through a quick phone conversation, but there are times when detailed discussions are necessary.
There are also times when clients are better served by consulting an expert on a given issue, be it another professional or a nonprofit or government agency. Let's take a look at some of the public and governmental resources that are available to you.
Chamber of Commerce
The U.S. Chamber of Commerce and your local chamber provide a wealth of information to members. The U.S. Chamber's website includes small business toolkits. Topics covered include employment practices, business startup and sales and marketing tips. Much of the information is necessarily broad in its approach, but it provides a starting point.
Local chambers of commerce can help fill in the gaps left by the more general information from the U.S. Chamber's website. Local chambers are more in tune with the local business environment. In addition to serving in an advocacy role, some either sponsor programs or can direct you to programs that mentor small businesses.
SCORE
Originally the Service Corps of Retired Executives, the SCORE Association provides free online and face-to-face mentoring for small businesses. SCORE has approximately 12,400 volunteers whose mission is to help entrepreneurs start and manage their businesses. In addition to the online resources available, you can submit questions that a qualified executive will answer. Local chapters also offer face-to-face mentoring opportunities. SCORE is a nonprofit organization that receives funding from the Small Business Administration and numerous public and private companies.
Colleges and Universities
Most colleges and universities count business administration among the majors they offer. In many cases, these organizations also provide small business counseling services. Services offered include help with business planning and assistance in packaging expansion plans. These organizations can also help you locate training for your employees, develop pricing models for your products and direct you to market research. Funded by a combination of federal, state and local (public and private) resources, the services are often free or low-cost
Other Not-For-Profit and Governmental Programs
Just about any city is interested in nurturing its business environment - after all, businesses provide jobs and a steady tax base. As a result, state and local governments often encourage establishment of economic development foundations and might even have offices dedicated to assisting businesses. Take a trip to city hall and ask if there are any local programs to help you with a particular problem. You might be surprised at what is offered by your local government.
This article touches on just a few free or low-cost options to help answer some of your business questions. Though each has its place, there is no one-size-fits-all solution to address your business issues. That's why it is best to have a combination of resources, both public and private, to help you run your business. Do you have any issues that have been troubling you? Give me and my firm a call. We will be glad to assist you in any way we can and direct you to the best resource to find the answers you need.
Confidence Increases in Small Business Sector
Recent surveys undertaken by the National Federation of Independent Businesses and Wells Fargo reveal an uptick in business owners' optimism. The gains in confidence reported in both surveys were small but statistically relevant. This increasing optimism has been described as slow but steady. Here's an overview of the surveys' findings.
National Federation of Independent Businesses
The federation surveys business owners every month and produces the "Small Business Optimism Index."Results published in mid-May revealed that the index, which is based on 10 business indicators, was at its highest level since October 2009. Here are some of the most significant findings:
For the first time
in almost two years, respondents who expected sales to increase in the next
quarter outnumbered those who expected a decline. This return to a more
optimistic outlook is encouraging.
Small business owners
are not rushing to declare the economic downturn over. They are a savvy
and realistic group, but survey results suggest that many now see hope on
the horizon.
Despite a modest
return to a more optimistic outlook, 90 percent of respondents reported
no new job openings.
Wells Fargo/Gallup Small Business Index Survey
The Wells Fargo/Gallup Small Business Index Survey looked at both business owners' ratings of their current situation and at their performance expectations for the next 12 months. More than 600 respondents participated in telephone interviews in all 50 states. There were 12 questions. Six of the questions addressed owners' ratings of their current business situation and six addressed their expectations for the next 12 months.
These results were in line with those outlined in the survey undertaken by the National Federation of Independent Business. The Wells Fargo report indicated that business owners appeared to "be regaining their footing, albeit at a measured pace." Survey analysts believe that increases in demand from consumers and businesses were having a measurable impact on the small business sector. It noted that favorable perceptions of their current financial situation and cash flow had created more optimism among the owners. The report singled out the following measures as being the main drivers of the overall assessment:
54 percent of respondents
rated their current financial situation as somewhat or very good today -
up from 48 percent in the first quarter of 2010
42 percent rated
their cash flow as either somewhat or very good - compared to 39 percent
at the beginning of the year
The six key categories that were analyzed include financial situation, cash flow, revenues, capital allocation spending, job hiring and credit availability. The report showed that responses from business owners in these particular categories showed improvement from January to April. A dip in future expectations revealed that business owners still remain wary about the continuing upturn in the economy.
Entrepreneurs are by nature realists and don't expect a fast return to boom times. However, it is encouraging to note that despite their pragmatism, business owners believe their financial position is stronger and that their business outlook is improving.
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