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Financial Priorities: Create a Tax Deduction to Fund Income, Legacy, and Philanthropy (Case Study #3)

Barry GoldwaterWritten By: Barry Goldwater in Newton, MA

How would you like to be able to do this for your family: create income with low tax burdens, leave a legacy to your family, and support philanthropic endeavors? This article describes the process and the strategy that provides all three benefits at the same time.

Fortunately, there are ways for everyone to take advantage of the principals of charitable giving provided that you have saved well and you are now are in a position to reorient that savings into an income and legacy program with tax deductions and efficiencies. This is my third case study drawn from real experiences and if you think like I do, then you know these are not isolated cases. Thousands and thousands of people have the identical scenarios I am illustrating, with different values and different nuances. My case studies and planning methodology is the creative side that addresses your financial priorities.

Case Study # 3:

Richard & Betty, both in their early 70s, own qualified and nonqualified Assets, have adequate income from pensions and social security totaling $70,000 annually. Their long term care plans are in place and they want to pass the bulk of their estate to their heirs. They would like to re-characterize their qualified money now (via a Roth conversion) OR take qualified distributions and figure out how to minimize the amount of taxable income while maximizing their legacy. Here are our recommendations.

1. Richard & Betty funded a LegacyPlan from LegacyTree Foundation, with $200,000 of non-qualified assets that were currently earning very low CD rates.

2. LTF issued a deferred Term Certain LegacyPlan that will pay out in 5 years or upon their deaths to their heirs.

3. Richard & Betty received an immediate income tax deduction equal to approximately 40% of the asset value.

4. They recommended their two favorite charities to receive charitable grants as a result of their LegacyPlan.

  • Total Value of Assets Transferred $200,000
  • Tax Deduction Created with LegacyPlan $81,731
  • Qualified Distribution Taken This Year $70,000
  • Total New Taxable Income $140,000
  • Less Tax Deduction (Up to 50% ) $ (70,000)
  • Taxable Income AFTER Qualified Distribution $70,000
  • Potential Tax Savings @ 25% of $81,731 = $20,433
  • Annual Income (5 yr. deferral /15 yr. payout) $14,793
  • Potential Benefit (payout plus tax savings) $244,518
  • Carry-Forward Tax Deduction for Next Year $11,731

Because Richard and Betty have a tax deduction of $81,731, they can distribute $70,000 from their IRA and pay no taxes by using $70,000 tax deduction against the taxable income. They could have also used the $70,000 to re-characterize $70,000 of their taxable IRA to a ROTH. By annuitizing the $70,000 they could receive approximately $5,000 a year income tax free. Instead, they chose to buy a 2nd to die life insurance policy for $81,000, $70,000 for this year’s premium and $11,000 for next year.  The $11,000 coincides with the remaining amount of tax deduction. The insurance benefit totaled $150,000 and that goes to their heirs tax free. Had they taken the income of $5,000 and invested it, at a 5% growth rate, it would have taken Rich and Betty 19 years to produce $150,000 and they did not want to risk not living that long.

The $200,000 gift to the charity also created a gift annuity with an income stream of $14,793 which lasts for 15 years and starts to pay out in 5 years. If R & B do not survive the term, the income goes to their heirs. If they do, in 5 years, they have increased their income 22% which would be termed as an inflation adjustment and great future planning. Incomes need to be adjusted higher for inflation every 3-5 years.

Lastly, they were able to give $6,000 to their favorite charitable causes.

This is how you can use philanthropy to leverage your existing portfolio, create tax deductions and create income streams that enable you to buy life insurance and leverage your family wealth even more.

My next blog will deal with what I call Celebrity Philanthropy: How to Annually Fund your philanthropic endeavors in perpetuity without writing a personal check from your checking account.

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About the Author: Barry Goldwater is an insurance consultant specializing in tax deductible, income, and estate planning strategies. He can be reached at 617-527-9736 or

To see more educational articles from Barry, click on the following link (Barry Goldwater).  To learn more about Barry’s practice, visit his website:

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LegacyTree Foundation is a 501C3 non profit organization est. 1999. The charitable transactions outlined are tested and performed according to IRS code and they are not considered investments. LTF and Barry Goldwater do not give legal, financial nor tax advise.  All the deferred annuities mentioned and incomes derived through the Legacy Plans are deferred annuities underwritten by an investment grade insurance company and not LTF. All life insurance contract illustrations provided by investment grade life insurance companies.
Annuity123 is an educational platform only.  Annuity123 does not offer insurance, investment, or tax advice.  You should always seek the guidance of qualified and licensed professionals concerning insurance, investment, or tax matters.

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