Immediate Full Deduction
When you make a charitable gift using borrowed funds transferred directly to a qualified 501(c)(3) organization, you are entitled to deduct the full amount of the gift in the year it is made. If you contribute $600,000 to charity, you receive a $600,000 charitable deduction, even though it came from a loan. This is not a loophole. It is the explicit position of the IRS, long-established in Revenue Ruling 78-38 since 1978 and consistently applied ever since.
Meaningful Tax Savings
For a donor with a combined federal and state marginal tax rate of 37% or higher, a $600,000 deduction can reduce the tax bill by $210,000 or more in a single year. These savings are realized immediately. They appear on your current-year return and may generate a large refund or dramatically reduce what you owe.
What Assets Secure the Loan?
The loan is secured by a permanent life insurance policy—either an existing policy you own with adequate paid-up death benefit, or one obtained as part of the funding process. For one of our two loan products, we do not require pledges of securities, real estate or business equity. For neither of our loan products do we require liquidation of appreciated assets. The life insurance death benefit is the principal or sole collateral, which means your existing investment portfolio remains untouched and continues to grow.
AGI Limits and Carryforward
For cash gifts to public charities, you may deduct up to 60% of your Adjusted Gross Income in a single year. If your gift exceeds this threshold, the unused deduction carries forward for up to five additional years, giving high earners with variable income the room to use the full benefit over time.
No Capital Gains Triggered
The gift is funded through borrowed capital, not the sale of appreciated assets, so you do not trigger capital gains taxes in the year of the gift. Your existing investments remain intact and continue to grow. Any future liquidation of appreciated assets can be timed and structured at your discretion, in lower-income years or through other tax-efficient approaches.
You Own the Life Insurance
The life insurance that is pledged as collateral is an asset that you own. It increases your net worth. To the extent the life insurance collateral death benefit exceeds the amount you owe on the loan, your other beneficiaries (i.e., your spouse, children, grandchildren, etc.) receive the excess life insurance payout. Further, your personal financial statement is stronger after the loan (and collateral assignment process) because you will own a greater number of assets.
How Is This Different from Other Giving Vehicles?
Charitable gift financing is sometimes compared to donor-advised funds (DAFs) and charitable remainder trusts (CRTs). They share a commitment to tax-efficient giving, but they are fundamentally different tools that serve different purposes.
| Feature | Charitable Gift Financing | DAF / CRT / Direct gift |
|---|---|---|
| Gift size | Amplified (give 3–10x what cash flow allows) | Limited to available cash or assets |
| Wealth impact | Principal preserved; net worth unchanged | Assets permanently transferred to charity |
| Deduction timing | Full deduction in year of gift | Full deduction in year of gift |
| Liquidity | No liquidation required; life insurance is collateral | May require asset liquidation |
| Repayment | Life insurance death benefit; no lifetime payments | N/A or structured over time |
| Privacy | Recipient charity follows the Donor’s Bill of Rights and protects donor privacy | Donor name may appear on public records |
| Legacy component | Residual loan repayment can fund additional giving at death | Limited or none |
Donor-Advised Funds
DAF is an excellent tool for timing charitable giving across years and for donating appreciated securities. But once assets are contributed to a DAF, they leave your control irrevocably. You lose the capital. Charitable gift financing takes a different approach: borrow to give now, claim your deduction in year one, and more than offset the loan balance with the value of a life insurance policy. Your charitable impact is immediate and large, and your net worth is preserved (and even enhanced), rather than depleted.
Charitable Remainder Trusts
A CRT generates income for you over time, then passes the remaining principal to charity at the trust’s termination. It is well-suited for donors who want to convert illiquid, appreciated assets into income streams while deferring capital gains. The principal eventually leaves your estate. Charitable gift financing makes a gift now while preserving your overall net worth. The two vehicles can complement each other. A CRT handles assets earmarked for eventual charity; charitable gift financing handles gifts you want to make now at a larger scale.
Direct Giving
Writing a check, sending a wire or transferring stock directly remains the simplest approach and is entirely appropriate for annual or modest gifts. Charitable gift financing becomes relevant when the gift you want to make is substantially larger than what you can comfortably fund from available cash, and when the tax efficiency of that gift matters meaningfully to your overall financial plan.