IMPROVE YIELDS: With our cash alternative program
- Receive an annual net yield ranging from 3% to 6%.
- Preserve safety and liquidity.
- Enjoy increased yields, as interest rates rise.
- Share a death benefit with employees as an additional incentive
Case Study
Retire on your terms while rewarding and retaining key people.
Situation: A University Investment Committee was seeking to increase yields on assets held in cash, U.S. Treasurys, CDs, and short-term bonds.
RECOMMENDATIONS AND RESULTS
Action Steps:
Assuming no change in yield, the organization’s existing investment strategy would produce $10,462,213 in total income over the next 10 years and $22,019,004 over the next 20 years. The CFO wanted to increase the yield on these assets without sacrificing safety or liquidity, so he repositioned the $50 million into specially-designed life insurance policies.
The policy cash value was projected to yield 5% per year. The $50 million in policies will produce $31,444,731 in income to the organization over the next 10 years and $82,664,885 over the next 20 years. The funds were earmarked to offset other employee benefit expenses and supplemental retirement benefit plans. In addition, the total death benefit of the policies on the lives of the key people exceeds $150 million, which may be used to:
- Recover the cost of supplemental retirement benefit plans
- Provide a benefit to the employee insureds;
- Fund its charitable foundation
- Improve the health of its existing under-funded pension plans
Unlike investments in bonds and other fixed income assets, as interest rates rise, the yield on these policies will also rise.
Results:
The organization was ecstatic to learn that so many important issues could be addressed with such a simple and powerful program, and the results to date have exceeded original projections. They always have the peace of mind knowing that the medical center may access the cash value of these policies, penalty-free, within just a few days.
Attract and Reward Key Executives
Non-qualified benefit plans used to attract and retain nonprofit executives can be excessively complex, risky, and inefficient. Improve existing plans and install new ones to:
- Maximize tax-efficiency
- Provide liquidity
- Promote flexibility
- Offer case of administration
Case study
Keeping a quality chief executive engaged.
Situation: Losing a museum’s beloved CEO to a competitor would be devastating, so we designed a meaningful solution. …..
RECOMMENDATIONS AND RESULTS
Action Steps:
Competition for quality non-profit executives is fierce.
The passion, commitment, and contacts of the chief executive of a specialty museum helped make the organization more visible, achieve financial stability, and become a respected tourist attraction. Losing him to a competitor or to an unexpected health episode would cripple the organization until it found a suitable replacement.
Cory helped the museum and the CEO design a SERP, the terms of which included a salary continuation benefit to be paid to his named beneficiaries if he passes away while employed by the museum. This incentivizes him to stay and continue to perform at a high level.
To meet its SERP obligations, the museum purchased an insurance policy on the CEO’s life. If he passes away while employed, the museum will use a portion of the death benefit proceeds to pay the salary continuation obligation. He elected to pay a small amount of current income tax in order to make this benefit tax-free to his beneficiaries.
The museum will keep the remainder of the death benefit for “key man” purposes to help it survive financially while it finds a replacement.
If the executive leaves or retires, the museum is still the policy owner and retains the flexibility to keep the insurance in force depending on the circumstances, including the health of the insured.
Results:
The museum was relieved that it finally found a cost-effective way to provide a meaningful benefit that helps to retain its chief executive while protecting the organization in case of his unexpected demise.
Increase Donations
Our Legacy Program provides benefits the nonprofit now and at the insureds passing, making it a more desirable option than traditional “charitable plans.” The charity can:
- Access 100% of the gifted dollars from day one.
- Insure someone other than the donor, if age and health dictate.
- Enjoy a competitive rate of return on gifted dollars without the market risk.
- Take advantage of a significant death benefit paid to the charity at insureds passing.
Case Study
Creating a perpetual endowment to fund scholarships.
Situation: A well-known donor, who was unhappy with many aspects of “traditional” charitable-giving approaches, was seeking a better plan that provided stronger benefits for all parties …….
RECOMMENDATIONS AND RESULTS
Action Steps:
A well-known donor, who was unhappy with many aspects of “traditional” charitable-giving approaches, was seeking a better plan that provided stronger benefits for all parties.
The donor and his alma mater university developed a perpetual endowment in his name to fund scholarships. Under the plan, he made a $1.0 million tax-deductible contribution to the university which was deposited into a cash value-driven life insurance policy, owned by the university, insuring the life of a 45 year-old key faculty member for approximately $3.0 million.
- As the $1.0 million grows in the policy’s cash account, it can be used to directly offset the cost of endowment’s scholarship program. By the time the faculty member retires at age 65, there is projected to be $2.6 million in this account.
- The university cancels the policy, places $600,000 of the proceeds on its balance sheet, and contributes the remaining $2.0 million to two new polices ($1.0 million, per policy), insuring the lives of two additional key faculty members.
- Should death occur, the organization will receive $2.0 million, tax-free, and the insured’s beneficiaries will receive $1.0 million, tax-free (assuming the insured picks up the small annual income tax due on the “economic benefit” of the coverage).
Results:
The donor and the university are ecstatic that the plan:
- Creates a pool of funds not subject to market risk for ongoing scholarships;
- Enhances donor visibility, if desired;
- Creates additional benefits for noted professors; and,
- Is independent from university investment and spending policies.
“As the head of a division of Abbott Labs and director of a bi-national nonprofit, I have encountered a number of advisors through the years. Cory not only helped me with my estate and business succession plan, but his creative solutions for bolstering the endowment of the nonprofit using well designed life insurance were cutting edge. I asked him to be on our board and participate in my family business because it is so rare to find a combination of sophistication and creativity in an advisor.”
Dr. Henry Sauls, Del Mar, CA / Sarasota, FL
