Charitable Gifts Take Diverse Forms

Chidem Kurdas

Managers have been known to donate shares of their hedge fund to their favorite cause. Another option is to give a life insurance policy or an insurance-wrapped investment portfolio.

Recipients of fund shares may have to wait for some time to cash in, depending on the fund and the terms of the gift. Some philanthropies redeem the shares as soon as it is allowed but others not in immediate need of cash prefer to stay with the fund and let the stake grow.

With a life insurance policy that provides the returns of a portfolio, a donor can make a large gift by investing much less money over time. William Dreher of Compensation Strategies Inc. calculates that if the investments earn 8% a year on average, a 55-year-old donor can give $10 million by putting only $1.9 million – tax deductable –  into a portfolio wrapped in an insurance contract.

Of course, if markets go down and the return is lower, the charity can end up with less than the intended gift. To make sure the gift is a specified value, the donor can buy a traditional life insurance policy and give it to the charity. This requires paying more in premiums compared to an 8%-or-higher-earning portfolio but gets rid of the uncertainty.



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