Generous Giving Trifecta

     In the world of high-stakes wagering on horse races, winning the Trifecta is a most noteworthy achievement. To win, you must not only pick the winner of the race, but also the second and third place finishers.
     When it comes to generous charitable giving, most taxpayers would prefer to benefit their charities first, themselves second and their loved ones third ... and the IRS dead last. This Generous Giving Trifecta can be achieved through a carefully coordinated legal and financial strategy that includes: 1. a Split-Interest Gift to charity (whether through a Charitable Remainder Trust, Pooled Income Fund, or Charitable Gift Annuity); and 2. a Wealth Replacement Trust.

The Trifecta Challenge

     Good news: When you make a Split Interest Gift to charity, your charity finishes first, with you (and your spouse) finishing a close second. The charity finishes first because it will be blessed by your generosity upon your death (or upon the death of your spouse, if later). You finish second, because the gift enables you (and your spouse) to give and receive. How? Before the charity receives the gift (or the assets held in it), you (and your spouse) enjoy lifetime income from it and valuable charitable income tax deductions.
     Bad news: When the charity inherits the gift, the assets are forever lost to your loved ones. This can be an impediment to generous giving, especially in light of the old adage that charity begins at home. Fortunately, there is a proven solution to this common dilemma employing the unique leveraging power of life insurance inside of a Wealth Replacement Trust. However, you must carefully follow the Dance Steps or risk including the life insurance death benefits in your taxable estate.

The Dance Steps

     First, you create a Wealth Replacement Trust (also known as an Irrevocable Life Insurance Trust). While you may not serve as a Trustee (nor should your spouse), you may select current and successor Trustees. The beneficiaries will be your loved ones.
     Second, you (and your spouse) make gifts to the Trustee on behalf of the beneficiaries in an amount roughly equal to the insurance premiums. The Trustee then provides written notice to each beneficiary that a gift has been made to the trust on their behalf and that they each have a designated period of time (not less than 30 days is typical) to request distribution of their respective share of the gift. After the designated time period has lapsed, the Trustee applies for the life insurance and pays the premium. [Note: This gifting ritual continues until your death, or the death of your spouse, if an insured and your survivor.]
     Third, assuming all of the Dance Steps have been followed, the death benefit will be estate tax free when paid to the trust for your loved ones.
     With careful planning and crisp execution, your Generous Giving Trifecta will enrich your charity, yourself (and your spouse) and your loved ones ... disinheriting only the IRS.