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An area where C3 Financial Partners works with clients and their advisors is helping to create and implement a charitable giving strategy. Now is a great time to engage in this form of planning as in a high-interest rate environment, life insurance planning can present unique opportunities to support community organizations while optimizing tax benefits.
By strategically utilizing life insurance policies and incorporating provisions of the Internal Revenue Code (IRC) Section 7520, donors can make a significant impact on the causes they care about while simultaneously benefiting from potential tax advantages.
C3 Financial Partners is here to help clients and their advisors explore planning opportunities that can be deployed to support community organizations in today’s financial environment.
Clarity – Interest Rates and Estate Planning Strategies
Two federally established interest rates, the Applicable Federal Rate (AFR) and the Internal Revenue Code §7520 rate, are critical components of many planning strategies. These rates, set monthly and based on government debt yields, rise with increasing interest rates and affect certain estate planning strategies, including certain types of trusts.
The AFR determines the minimum interest rate that is charged to avoid gift tax on loans between related individuals. As AFR rates rise, so does the allowable minimum interest rate on an intra-family loan.
The §7520 rate calculates taxable values for specific estate planning approaches, including certain types of trusts. A change in the §7520 rate can either increase or decrease the taxable value, depending on the specific strategy or type of trust.
C3 Financial Partners tracks the AFR and §7520 rate to proactively work with clients and their advisors in maximizing the benefits from planning involving charitable organizations.
Confidence – Charitable Gift Planning and High Interest Rates
Here are planning strategies that can result in a better outcome around charitable gift planning when interest rates are high:
Charitable Remainder Trust (CRT) – A CRT allows donors to contribute assets, usually appreciated securities or real estate, into a trust that pays them, or a designated beneficiary, an income stream for a fixed period or their lifetime. After the trust term ends, the remaining assets are transferred to a designated community organization. Higher interest rates may reduce the present value of the organization’s remainder interest, allowing donors to retain a larger income stream while benefiting the organization.
Wealth Replacement with Life Insurance – To offset reduced inheritances after charitable gifts, donors can use life insurance as a wealth replacement tool. By aligning the policy with the reduced estate value post-donations, donors ensure intended inheritances while providing tax-free payouts to beneficiaries.
Donor-Advised Funds (DAFs) – In a high-interest rate environment, donors can make a significant upfront contribution to a DAF, which then invests the funds and distributes them to community organizations over time. Donors can take advantage of the IRC §7520 rate to maximize the charitable deduction on their income tax returns. This strategy allows donors to support multiple community organizations over time while benefiting from potential tax advantages.
C3 Financial Partners can explain the options available that may benefit community organizations while enhancing the benefits to the donor.
Coordinating Charitable Gift Planning
In a high-interest rate environment, there are several planning opportunities that individuals can explore to support charitable organizations while optimizing tax benefits. Utilizing the IRC §7520 rate, donors can strategically structure charitable trusts, such as CRTs, to maximize both their income and charitable impact. Integrating life insurance into the overall estate plan can provide a wealth replacement mechanism for beneficiaries, ensuring their financial security. Additionally, DAFs offer a versatile and immediate way to contribute to charitable causes while gaining significant tax benefits.
As with any financial and estate planning matter, it is essential to work with experienced financial professionals, including the planning specialists at C3 Financial Partners, to tailor the strategies to individual circumstances and goals. By leveraging these planning opportunities, individuals can make a lasting impact on community causes they care about while maximizing their support in a high-interest rate environment.
C3 Financial Partners looks forward to helping clients gain clarity in their goals and objectives, confidence that they are making the right decisions, and providing coordination with their other advisors.
Securities offered through Valmark Securities, Inc. member FINRA, SIPC. Investment advisory products and services offered through Valmark Advisers, Inc., an SEC Registered Investment Advisor. Representatives may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. C3 Financial Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
The information presented here is for educational purpose only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. This material is not intended to provide and should not be relied on for tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated.
