LGBTQ+ people take pride in being a community of givers. It’s almost as if the “give back” mindset is in our DNA. Many—if not most—in the LGBTQ+ world recognize the need to donate to causes that help everyone in the community. When we are inspired to give, we also tend to put economic fears aside, and it’s no surprise that charitable giving in our community is on the rise. The Funders for LGBTQ+ Issues reports that $201 million went towards our cause in 2020 and a record number that same year of $36.1 million went to transgender communities.
However, for many, money may be tight, and inflation is having an impact. While we may want to give, we worry about our daily budgets. However, there are several financial strategies you can consider, which will still allow you to donate. The good news is, if you’re in a position to, you can take advantage of these strategies to complement other philanthropic efforts. Here are a few:
- Donate an existing life insurance policy—If you already have a policy and no longer need the death benefit, you can gift the policy to your desired charity, which may give you some tax benefits. The charity will receive the full benefit amount when you pass away.
- List the charity as a beneficiary of your life insurance, 401K or IRA—As the owner, you remain in control of your account and can leave money to as many beneficiaries as you like: children, grandchildren, or even multiple charities. Another benefit: your gift is passed on tax free to your charity!
- Purchase a separate life insurance policy or ILIT—There are times when it makes sense to have separate policies: one for loved ones and one for charitable gifts. This technique can prove especially helpful by leveraging an insurance policy to leave a lasting philanthropic legacy. There has been success with using an ILIT (Irrevocable Life Insurance Trust) for charitable purposes. This clever technique allows the donor to contribute to a life insurance policy for a number of years, which is considered a “loan” to the ILIT. Once the “loan” is fully paid, the donor may recoup the contributions in the form of a loan payback. The policy stays in place until the insured is deceased, leaving the death benefit to the charity.
- Reposition your RMD—Gifting your Required Minimum Distribution (age 72 and up) may qualify as a charitable donation and won’t be a taxable event for you. Your RMD can also be used to fund a life insurance policy for your children or grandchildren, leaving your charity to be the beneficiary of your IRA. This creates a tax-free legacy for everyone!
- Create a Charitable Remainder Trust—While this planned-giving tool is designed to shelter appreciated assets such as investments and real estate, you can also incorporate life insurance if it’s set up properly.
While charitable gifting may fulfill your heart, it may also allow you to reap a variety of tax benefits. This is a win/win for those who have a “give back” mindset.
If this is something you wish to pursue, it’s advisable to consult a licensed financial advisor, tax advisor and/or attorney to help you make the best decisions and effectively achieve your objectives.