Money Management for Non-Profits Made Easy

An Overlooked Solution to Fund Raising Campaigns

Being on the front lines of a worthy cause can be both exciting and exhausting. That is because no matter how worthy or noble the cause, funds necessary to adequately fulfill the mission are not always readily available.

The facts are,” money doesn’t grow on trees” and when non-profit organizations are gifted money that money often is spent on necessary and worthy projects that have been waiting in the wings for months, if not years, instead of it being used to eliminate the need for fund raising campaigns. This leads to the vicious cycle of having to spend more time and money on fund raising than in tackling the projects that the non-profit would really like to be accomplishing.

Banks as well as corporations in America are typically shrewder than non-profits in regards to money management. Not necessarily because they are smarter but simply because of the Internal Revenue Code and how it affects them.

The taxes that banks and corporations are subjected to have forced them to become shrewd in order to survive. As Jesus once said the, “children of this age are shrewder than the children of light when it comes to money.” And so just because a non-profit is on the side of the angels doesn’t mean that the money non-profits receive is being managed efficiently.

The intent here is to inform, not disparage, because most great non-profits understand that enlightenment, education, full disclosure and the dissemination of truth changes lives and that is what most non-profits exist for. This same idea holds true with money management.

Therefore a relevant discussion about the inherent tax favorable nature of non-profits is in order because it is their tax favorable nature that allows non-profits to accumulate assets relatively unrestricted as far as the Internal Revenue Code (IRC) is concerned In other words, non-profits have a unique and very profitable opportunity to leverage the assets they purchase to create much more cash flow than banks, corporations or even individuals can create with the exact same amount of money, assets, accounts receivable and payable. But it takes special knowledge, which most non-profits have never heard about, let alone implemented.

Banks alone in the United States have spent over $149 billion on a very specific asset purchase because this asset purchase allows them to: 1) Cover their liabilities, 2) Finance other purchases and projects, 3) Fund tax free non-qualified retirement plans, and 4) Recover the money they spend. Corporations spend even more than banks do purchasing this same asset and for the exact same reasons. In fact, thousands of individuals have made this same asset purchase to accomplish the same objectives.

The good news is that non-profits have the ability to do the same thing in a much faster and profitable manner due to their tax-free status. Unfortunately, most non-profits have not participated in this well known proven cash flow management plan primarily because they have been misinformed or have been ignorant of the possibilities.

So why is this cash flow management plan so powerful, and how does it work?

The reason why this plan is so powerful is that;

  1. Once the asset is purchased the internal rate of return is guaranteed, regardless of any leverage taken against the asset.
  2. The asset is subject to dividend earnings that are tax deferred.

How the cash flow management plan works is through a series of simple steps.

  1.  The purchase of participating whole life insurance, which has been used in this country for over 150 years because of its proven record of stability and growth.
  2. Leveraging the value of the participating whole life insurance to fund or purchase things that would otherwise be paid for with cash.
  3. Transferring the cash that would have been spent to fund or purchase things to the insurance company in a systematic way so that the time value of money works for you instead of against you.
  4. Reusing the money that you normally would have spent on purchases and never seen again…this sounds like a misprint, but once explained the description will seem fitting.

Many savvy business people have leveraged the value of their life insurance policies to bolster, build, restore and even fund their dreams, causes or needs. John Wanamaker, JC Penney, Walt Disney and Ray Kroch, to name a few, all leveraged the value of their life insurance to fund their aspirations. Doris Christopher funded Pampered Chief by leveraging her life insurance, as did the Foster Family when they started Foster Farms of California and the Fink Family when they started Finks Cigar Factory of Austin, Texas. And as mentioned above banks and corporations have leveraged life insurance for years and in doing so have greatly enhanced their own cause and bottom line.

But as profitable as this has been and continues to be for businesses owners, corporations and individuals, non-profits stand to profit even greater from the purchase and leverage of life insurance because of their tax privileged status.

The Internal Revenue Code (IRC) has specific guidelines of how much of this asset can be purchased and leveraged before it is treated as a Modified Endowment Contract rather than a life insurance product. And as soon as a business owner, bank, or individual crosses these guidelines there is a penalty to pay PLUS the growth in the policy becomes taxable instead of deferred.

Non-profits have no such penalties to pay because they are exempt from these rules! So practically 100% of what a non-profit pays in premiums can be leveraged immediately and used to advance the cause and purpose of the non-profit. But that isn’t the end of the story because the life insurance policy continues to grow even while it is totally leveraged. This means there will be a steady build up of more value, which can be leveraged in the future. On top of that there is the face value, which will in the future become an even greater gift to the non-profit that what could have been provided any other way.

Example 1:

  • An individual purchases a life insurance policy naming a non-profit as the beneficiary.
  • The face value of the policy becomes the non-profits once the individual passes.

Example 2:

An Individual leverages the value of the life insurance policy they own and gifts the money to the non-profit while they are still living.
Individual pays back to the life insurance over time what they would have paid to the non-profit in that same time period.

  1. Non-profit can utilized this large gift to immediately fund, purchase or complete projects that normally couldn’t be initialized until funding had been completed through smaller donation amounts.
  2. Individual continues to earn dividends and an internal rate of return on the policy even though the value of the policy has been leveraged.
  3.  Individual can repay the insurance company back over time (similar to what the individual would normally contribute to the non-profit on a scheduled basis and gift an even larger sum to the non-profit in the future than would have been possible otherwise.)
  4. Individual can leave the face value of the policy to the non-profit and the non-profit receives another gift when the individual passes.

Example 3:

Non-profit purchases key person participating whole life insurance on the key officers of the non-profit.

  1. Immediately the non-profit leverages 100% of the value in the policy to fund, purchases or complete a project.
  2. The non-profit uses incoming gifts or contributions to repay the insurance company for the money leveraged and is able to leverage even greater funds in the future due to the internal rate of return and dividends earned in the policy.
  3. The non-profit receives a pay out of the face value when the insured officer passes continuing the legacy of that officer and their commitment to the cause of the non-profit.

Though these are three common examples of leveraging participating whole life insurance for the benefits of a non-profit they are by no means the only examples or possibilities.

For more detailed and specific examples to explore possibilities for your non-profit or to request that Tom McFie address your non-profit, contact Life Benefits at 702-660-7000.