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Volume
9, Issue 2 - March 2007 |
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"I
love your newsletter! It's refreshing, fun
and filled with helpful hints"
Toni Paglia,
Director of Development, The ARC
Syracuse, New York |
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A New Twist on Planned
Giving |
Introductory
Note from Jean Block: I have written before in this newsletter abut the
importance of including planned giving as a critical part of your
diversified development plan. This lead article presents a new and
potentially profitable twist that I hope you will consider. The article was
written by Mary Lou Dobbs, president, Executive Benefits Strategies, Inc.
While life insurance policies have been donated to charitable organizations
and foundations for many years, they all too often proved to be more of a
thorn than a gift as the donor no longer wants to pay the policy premiums.
In such cases, the charities, also unable to pay the premiums, had no choice
but to take the limited cash surrender value. With the emergence of life
settlements, foundations and charities have an option over “gifts” that are
too expensive to maintain, or have minimal surrender value. They can now
maximize the value of policies on the verge of lapse or surrender. In
addition, the life settlement, as a charitable gift, can give the donor an
income tax deduction and avoid taxable consequences on the sale of the
policy.*
What is a life settlement? A life
settlement is the sale, thereby transferring ownership, of an unwanted life
insurance policy. It is the secondary market for life insurance policies
that are no longer needed, valued, and/or affordable. Because a policy is in
essence a “contract,” a life settlement provider (institutional funders such
as premier national and international banks and insurance companies) reaches
an agreement with the insured to assume the conditions of the contract. The
settlement provider makes the premium payments and pays the insured a lump
sum value more reflective of the policy’s worth than the issuing insurance
company’s cash value. The provider becomes the policy owner and beneficiary
upon the insured’s death.
Generally the policy has a minimum value of $250,000 and the holder is at
least 65. In most cases life settlements pay about 300% of the cash
surrender value and about 25% policy face value. However, depending on
varying circumstances and negotiations, a life settlement offer may be nine
times the cash surrender value. Each situation, evaluation, and ultimate
agreement, reached after extensive due diligence that includes a thorough
policy appraisal, is unique. With all agreements however, the settlement
provider ensures the seller’s anonymity as well as places the settlement
funds in an escrow account for safe keeping during the transaction.
Life settlements started to emerge in 1998, it’s only in recent years that
life insurance policy holders, estate planners, CPAs, and financial advisors
have fully embraced the option, recognizing it as a living liquid asset,
rather than a sometimes limited and burdensome non-performing death asset.
Recognizing policies as assets with a fair market value has imposed new
duties on financial advisors. They are now obligated to both include the
policies in the inventory of a client’s assets, as well as provide
information regarding settlement options.
The secondary market that benefits nonprofits was created by consumer demand
as the only two life insurance exit options were allowing a policy to lapse
or accepting its minimal cash value. In either case, it left billions of
dollars on the tables of the issuing life insurance companies. Millions of
seniors now have a valuable liquidity option for policies which no longer
hold value for them.
Quite simply, circumstances often change from the time a policy is
purchased. The beneficiary is no longer living perhaps, or is now an
ex-spouse. The policy holder can no longer afford, or no longer wishes, to
make the payments. Or perhaps the payments are affordable but the face value
is rapidly decreasing. There may be a need for liquidity to invest in more
relevant living financial products such as long-term care insurance, stocks,
annuities, or even a better performing life contract with built-in
guarantees. For business owners, the need to sell a policy may arise due to
a change in ownership or the retirement of a chief executive, hence the $10
million key-man policy may be an unrealized valuable asset. Or perhaps a
policy was purchased for a buy-sell agreement that is no longer relevant.
And becoming an increasingly more popular practice is the choice to
contribute the policy to a charitable organization or foundation.
The life settlement market driven industry has soared since 1998. It is
estimated that settlement firms purchased $2 billion worth of policies in
2003, tenfold that in 1998, and has grown to approximately $10 billion
today. Life settlement is a pro-consumer financial alternative. It provides
choices to businesses and individuals and is an advantageous tool for estate
planning and charitable giving. In summary, it has transferred a policy’s
value from the issuing insurance company to the insured.
* The sale of a life insurance policy may be taxable. It
is recommended that policy holders consult with their insurance agent or tax
accountant.
This article appeared in the Albuquerque Journal 2/1/07.
Mary Lou Dobbs is the president of Executive Benefit Strategies,
Inc., an independent agency which provides life settlements, succession
planning, living buyout, and nonqualified executive compensation services to
business owners and other professionals. She may be reached at 505.688.6703,
toll free at 877-688-6703, or . Dobbs has more than 30
years experience in insurance, business exit strategies, and sales training,
most recently as Senior Vice President of Wells Fargo Insurance. She is the
author of “The Cinderella Salesman” and has published articles on business
succession and nonqualified executive compensation planning in Southwest
Airlines’ Spirit magazine and in industry publications. Visit her web site at
www.mldobbs.com.
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QUESTION: How do you get people to move forward
in a fund raising request?
ANSWER: Employ a bit of language skill
that addresses the reality of what inspires people to action. The reasons
people are opposed to a request are always
factual, and the reasons why they will comply with a request
(such as for a contribution) are emotional.
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Factual Reasons to oppose
a request may be:
- Can’t afford it
- Don’t believe in it
- Lack of interest
- Lack of motivation
Emotional Reasons to comply
with a request may be:
- Pride in giving - wish to give back
- Feel a passion for the cause or organization
- Need the tax benefit (What do people feel more emotional for
than for their wallets?). Tax savings redirect money for family or
additional contributions.
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The language used needs to appeal to the emotions that motivate results. A
careful, attentive listener will pick up on what the emotions may be, which
are different for everyone, and address them by emphasizing the emotional
reward to be gained from complying with the request.
How then to move people to the end result? You ask, “In your opinion,
do you feel you would benefit this (organization, cause,
program, population, etc.) by your contribution in spite of your
concerns?”
Their likely response would be “Yes.” You may then reply with a question
such as, “Would you have any objection to … meeting with the executive
director … completing the contribution form? … presenting this to your
board? The likely response to any of these questions would be “No, I
wouldn’t mind.”
No is our innate response to requests. These questions turn No into Yes with
concrete results oriented language. Using the above language appeals to
emotions and helps your prospective donor through the process.
At this point you might ask another question that creates ownership such as,
“Who handles the checkbook in your family?” Ownership questions keep the
process moving toward the end result you wish.
Contributed by Mary Lou Dobbs, President, Executive Benefits Strategies,
Inc.
For additional information regarding this and related topics, contact Mary
Lou Dobbs at 505.343.0617, or visit her Web site at
www.mldobbs.com.
Back to Table of
Contents
Plan
to attend the Annual Social Enterprise Alliance Gathering April
17-19, 2007 in Long Beach, California. This conference offers you a chance to
network with others and learn from experienced nonprofits and trainers in social
enterprise. Register at
www.se-alliance.org. Membership in the Alliance is reasonable and the
Internet forum allows members to post questions and get valuable answers from
those who have “done it.”
If you are interested in learning more about how you can diversify your funding, visit
www.socialenterpriseventures.com to learn about
Expedition™ and Road Trip™ training.
The IRS has launched a new web-based version of its popular Exempt Organizations
Workshops covering tax compliance issues confronted by small and mid-sized
nonprofits. The workshops are free. Go to
www.stayexempt.org to access the
workshops.
Back to Table of
Contents
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Contents
HOW CAN I HELP YOU?
TAKE THIS QUICKIE QUIZ
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Please give me a call if you want to turn any NO into a YES. I can help
with:
- turning your Board into a dynamic group of volunteers,
- facilitating a strategic planning session,
- analyzing your current fundraising and suggesting some new ideas, and
- training volunteers and staff in becoming more effective fundraisers.
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Here is what people have said about my training and facilitation:
“You certainly shifted my paradigm. After hearing you last
Friday, it is the first time in 11 years as an ED that I was excited abut
fund development. And you got my Board members to that point as well.
Kay
Hopper
RDC for Children, Richardson, TX
“Your seminar in Dallas was the best I ever attended. You
are wise and hilarious.”
Mary Jo Dorn
Catholic Charities of Dallas
"Jean conducted an extremely well
organized and productive [Board] retreat, one that I can
say with confidence that our members count as the finest
ever conducted for us. Jean's follow-up report was
in-depth and meaty, and both Board and staff have
referred to it time and again. The knowledge of
boardsmanship the members took with them has made a
remarkable difference in their levels of commitment and
support."
Eileen Cook, Executive Directorr
Casa Esperanzaa
“Your training was invaluable to me. I dreaded doing this
because I couldn’t even sell someone a candy bar in the past but I was
inspired by your advice to try. I raised about $377,000!"
Joan Shepack
Keystone Botanical Garden, El Paso,
TXX
"I attended the Corporate Sponsorship Workshop - WOW! You
were amazing! What an OPPORTUNITY for me!!
Your presentation style was EXCELLENT. By far the best
workshop I've been to in a long time (content and style both!)."
Vicki
Kopplin
Epilepsy
Foundation of Minnesota
"As a senior-level development officer, I have a hard time
finding useful workshops. Jean's programs should be required for even us old
CFREs."
Trisha Dunbar
Visiting Nurse Association,
Dallas, TX
Jean Block
Consulting, Inc.
7915 Cliff Road NW
Albuquerque NM 87120
(505) 899-1520
Fax (505) 890-5285
Email:
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"I
love your newsletter! It's refreshing, fun
and filled with helpful hints"
Toni Paglia,
Director of Development, The ARCRC
Syracuse, New Yorkk |
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