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What Will They Say at Your Funeral?


By Krista McBeath, McBeath Financial Group

Last Sunday, my husband and I settled into our seats as our pastor walked to the pulpit and began his message. “What will your legacy be?” While this is a serious subject, the congregation laughed when he joked about recording his own eulogy and saying great things about himself. But, the message was clear: how can we make a lasting impact now and after we’re gone?  What will people say about us at our funeral?

That same week, John McCain’s funeral filled the news. Many have spoken with reverence about the legacy he leaves behind, but perhaps none were more emotional or touching than his daughter’s words. He lived a life in service to God, his country, and his family. It reflected in everything he did and all he left behind. I believe he is an inspiration.

The truth is, there are many unsung heroes. There are people that I meet in my office every week that are making an impact and aren’t looking for headlines. They work, sacrifice, and take action to make a difference for their families and the causes they believe in. Their loved ones will tell you that they are leaving a legacy that is every bit as important as those left by the people that make the news.

While it’s true that many of the people I meet are most concerned with the basics of not running out of money in retirement, there is usually an underlying purpose they have beyond their own wellbeing. It’s my job to help them in their goals for not only retirement planning, but to include their other goals in my planning.

Many of my clients have decided to make a difference by donating money to local religious, educational, social, or cultural organizations. In addition to the immense satisfaction that comes from giving to others, charitable giving can provide tax benefits for the donor and his or her heirs when done as part of an overall estate plan.

Charitable gifts of life insurance
Gifts of life insurance have unique advantages, including the following:

  • The proceeds are generally received income and estate-tax free by the charity.
  • Under certain circumstances, the proceeds may pass to the charity outside the will, avoiding probate proceedings.
  • In combination with a wealth replacement trust, assets may be kept intact for the donor’s family, as described below.

Gifts of life insurance can be made in one of two ways:

  • The insured is the owner of the policy, and the charity is the beneficiary. This arrangement is used when an insured/donor wishes to retain control over the insurance policy. Because the insured owns the policy at death, the death benefit will be included in his or her estate for tax purposes, but it will be 100-percent deductible, since it is payable to a charity. However, premiums are not income tax deductible.
  • The charity is owner and beneficiary. Unlike the situation in which the insured retains ownership, the premiums are considered a charitable gift and may be income tax deductible to the donor according to Internal Revenue Service (IRS) guidelines.

If the donor gives an existing policy to a charity, the fair market value of the policy (generally, its full cash value) is allowable as an income tax deduction. The tax consequences of future premium payments for the gifted policy would be the same as the situation described above, in which the charity is both owner and beneficiary.

Charitable remainder trusts
If the prospective charitable donor is seeking a way to increase income, reduce estate and income taxes, avoid taxes on gains, and make a significant charitable contribution without reducing his or her family’s inheritance, a charitable remainder trust (CRT) or a wealth replacement trust may be appropriate. A CRT can allow an individual to make a gift to a charity while retaining a current income interest in the gifted asset during his or her lifetime.

In general, it may be best to fund a CRT with an asset that, if sold outside the trust, would produce substantial long-term capital gains tax. After the trust is executed, the donor may transfer this appreciated, low or non-income-producing asset to the CRT. The CRT can then sell the asset and provide the donor an income for life, for a term of years, or for joint lives. Upon the death of the donor or the donor’s named non-charitable-income beneficiary, the remaining trust assets will pass to the charity. Here are some of the benefits of this strategy:

  • When the trust is created, the donor may get a current income tax deduction based on the present value of the future amount passing to the charity.
  • No tax on the gain is paid by the trust when it sells the asset, since the trust is exempt from such tax.
  • The donor may get increased income, since the trust may invest in assets paying a higher rate of return than the contributed asset was producing, and the trust may have more to invest, since it doesn’t pay tax on the gain.
  • Estate taxes are reduced, since the asset placed in the trust has been removed from the estate.

After the donor’s death, the remaining assets in the trust pass to the charity, not to the donor’s heirs. However, the tax savings produced by the charitable donation and the income generated by the trust can be used to pay premiums on a life insurance policy owned by an irrevocable life insurance trust (ILIT) — sometimes known as a “wealth replacement” trust. The life insurance policy in this trust replaces the value of the assets that pass to the charity in the CRT. Since the life insurance is purchased and owned by the irrevocable trust, the proceeds are free of income tax, as well as estate tax.

These are some of the charitable giving tools and techniques that can provide donors with certain tax benefits. As you’ve probably realized, it takes a little work and some planning. You’ll need specific guidance from qualified tax and legal professionals. For many of the people that I meet with, they have a heart that makes it worth it to them, that’s why I see them as heroes leaving a legacy. As Meghan McCain said at her father’s funeral, “We don’t put our heroes on pedestals just to remember them, we raise them up because we want to emulate their virtues. This is how we honor them, and this is how we will honor you.”

Krista McBeath is a chartered financial consultant, a licensed insurance advisor, a fiduciary, and an experienced tax advisor who specializes in financial planning, investments, taxes, and insurance. McBeath Financial Group’s Technology Empowered Advisor Method (TEAM) is a financial planning process that integrates the personal touch of a relationship-based advisor with high-tech software tools to assess a client’s current portfolio and then analyze options from a variety of financial vehicles. Phone 309-808-2224 or email for appointment information.

Advisory services are offered through McBeath Financial Group and Motiv8 Investments, LLC. Mc-Beath Financial Group and Motiv8 Investments, LLC are not affiliated. Insurance products and services are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC. are affiliated.