Charitable Giving Estate Program
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Charitable Giving Estate Program

Let’s say you’ve got $1 million in your tax deferred IRA. First, you roll it over into a self –directed IRA, which is not a taxable event. Once in your self-directed IRA, you make a loan to your favorite charity, let’s say in the amount of $500,000 at the “fair market” rate of interest, and the charity signs a promissory note stating that the loan will be repaid to your IRA upon your death, and interest payments will be paid to your IRA annually. 

The charity may use some or all of the funds to purchase a single premium permanent life insurance policy on your life. The cost of the policy is $300,000 which purchases $750,000 death benefit. The policy’s beneficiary is the charity, but there’s a clause called a “collateral assignment” that states that the loan is secured by and will be repaid from the policy’s death benefit proceeds. The Charity can use the additional $200,000 in any way it sees fit. At death, once the loan is repaid, the Charity will receive whatever is left over. 

So, upon your death, the death benefit of $750,000 is divided with $500,000 going back into your IRA to repay the loan, and $250,000 going to the charity to use as it sees fit. Upon your death, your IRA has its $1 million balance, which becomes part of your estate, and your favorite charity has received $450,000 from you as well.