September, 2010: “The Foundation and Planned Giving - Life Insurance Gifts”

by Mike Bourland
American Football Coaches Foundation

Courtesy: AFCA
Release: 10/01/2010

In previous editions of the Extra Point, we continued our discussion of various methods of Planned Giving which can assist The American Football Coaches Foundation (the “Foundation”) meet its financial requirements.  Planned Giving, as has been discussed, is the structured and pre-planned way to donate to the Foundation.  It is charitable giving through Wills, Living Trusts, Life Insurance, Charitable Gift Annuities, Charitable Remainder Trusts and other advance planning methods.  In the most recent issue of the Extra Point we discussed Foundation giving through Charitable Remainder Trust (“CRT”) as the Planned Giving technique of choice.  In this issue, we will discuss Life Insurance, another Planned Giving technique.  But before doing that let’s again review key aspects of the Foundation, its goals and how it accomplishes its goals.

The goals of the Foundation are to provide funding for the education of American football coaches to better serve the public through role modeling and character development for young men and young women and the promotion and enhancement of the coaches’ technical skills and coaching capabilities.  The Foundation is a publicly supported, tax-exempt charity. Contributions to the Foundation qualify for an income tax, gift tax and estate tax charitable deduction to the donor. Revenue generation activities of the Foundation should be structured to maintain its advantageous publicly supported, tax-exempt charity status.

The American Football Coaches Association (AFCA) is a tax-exempt trade association. Contributions to the AFCA do not qualify for an income tax charitable deduction to the donor.

For the Foundation to meet the requirements of a publicly supported tax-exempt charity, the Foundation must receive at least one-third (1/3) of its support from a large number of donors, which includes AFCA member coaches.  That is why your annual contributions are anticipated and strategic to the success of the Foundation.  For every dollar given by an AFCA member coach, the Foundation can receive two additional dollars from a larger donor or donor foundation without endangering the Foundation’s favorable publicly supported, tax-exempt status.  As you are now familiar with this rule, you can see how every AFCA member coach’s personal involvement is important to the Foundation’s game plan to solicit and receive contributions from wealthy individual and their family foundation donors. With all of these gifts, the Foundation has funds that it can put to work to support the Foundation’s goals.

One of the Planned Giving techniques that donors can use to give to the Foundation is a gift of Life Insurance.  A donor, including AFCF member coaches, can make a significant gift to the Foundation by naming the Foundation as the beneficiary or owner/beneficiary of a Life Insurance policy on the donor’s life.  Here is how it works.

A donor who believes in the goals of the Foundation applies for and receives a Life Insurance policy on his or her life.  When the application for the Life Insurance is signed, the donor names the Foundation as the beneficiary of the death benefit (proceeds) of the Life Insurance policy.   During his or her life, the donor (the insured under the Life Insurance policy) owns the policy and pays the Life Insurance premiums on the policy.  No income tax charitable deduction is allowed the donor/insured for the payment of the Life Insurance premiums.  Upon the insured’s death, the death benefit (proceeds) of the Life Insurance policy is paid to the Foundation.  The payment of the proceeds to the Foundation is estate and income tax free to the donor-insured and income free to the Foundation.

As an alternative, the donor-insured, upon applying for the Life Insurance policy, can immediately transfer ownership of the Life Insurance policy to the Foundation.  The Foundation can then names itself as beneficiary of the death benefit (proceeds) of the Life Insurance policy.  The insured can then make income tax deductible gifts annually to the Foundation to pay the premiums on the Life Insurance policy owned by the Foundation on the donor-insured’s life.  Upon the donor-insured’s death, the death benefit (proceeds) of the Life Insurance policy is paid to the Foundation.  The payment of the death benefit (proceeds) to the Foundation is estate and income tax free to the donor-insured and income tax free to the Foundation.

As noted in previous articles, even though contributions from wealthy donors are needed, a wealth donor’s contribution in excess of two percent of Total Contributions received by the Foundation will not qualify in satisfying the Foundation’s one-third public support test.  That means that small contributions by a large number of donors (thereby increasing Total Contributions to the Foundation) are necessary to get the maximum benefit from the larger contributions of wealthy donors.  Every dollar that a member coach contributes, and every dollar that is contributed because of member coaches’ active support in involving a large segment of the coaches’ community and school opens the door for maximum benefit from larger donations.  The effect is circular:  Member coaches raise money and awareness, and these contributions allow larger donations from wealthy donors, including wealthy individuals and foundations. The result is the generation of significant revenue to the Foundation to aid the Foundation in achieving its goals.

Please continue to plan and conduct fundraising events in your community, such as banquets and golf tournaments.  Proceeds from admissions, sales of merchandise, performance of services, or furnishing of facilities at an event are classified as “gross receipts” funds of the Foundation.  Gross receipts funds should target a broad base of the community, as no single person can provide more than 1% of the Foundation’s Total Support through gross receipts and have it count toward maintaining the Foundation’s favorable publicly supported, tax-exempt status.

Will you consider making a gift to the Foundation of Life Insurance or through some other Planned Giving Technique?  Will you encourage others to do the same?  Will you continue to plan and conduct fund raising events in your community?  Remember that the Foundation needs participation from every member coach in order to meet its goals. 

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“Coach George Smith is not only an influence on young people, but the influence is multiplied many times in the beliefs of the young people he helped mold into amazing human beings. George is an outstanding coach, but more importantly, he is an outstanding gentleman.” —Tina Jones, Principal of St. Thomas Aquinas High School