Word is getting around throughout the charitable giving community that a new endowment campaign financing facility is making possible $billions of donations to top charities, hospitals, and fraternal organizations.
The program I’m describing was created by a team of ex-Lehman Brothers and Bank of America Securities ABS professionals, and is being sponsored by some of the largest charitable endowments in the country.
Each program is run as a fund-raising campaign by the Non-Profit Organization (NPO) but is totally distinctive in that the donors as part of the EPOCH Program, receive premium loans for their entire lifespan on a non-recourse basis. Each donor agrees to have a $2.5 million universal life policy placed on his or her life, with the entire proceeds irrevocably dedicated to a trust whose beneficiary is the charity or qualifying NPO. Each tranche contains at least 400 donors-trusts for a total of $1 Billion in life insurance proceeds.
Life insurance trusts in themselves are not earth-shaking as they have been a standard planned-giving staple for years.
However, to further what I mentioned above, the premiums are paid by a master trust which is funded by an unusual form of security – the Life Insurance Financing Trust Security or “LIFTs”. The LIFTs are “loans for life,” which are collateralized by Irrevocable Life Insurance Trusts (ILITs) and, as an actuarially significant portfolio, are sold to major pension funds or to existing major charitable endowments in securitized form as LIFTs securities.
LIFTs securities are popular because they are high yield (10.5% IRR), non-correlating to the capital markets, liquid via rule 144 eligibility, and best of all, long duration (27 years). The buyers are also motivated by the duration-matching character of the collateral – all policies statistically “mature” by age 100 and are actuarially curved by the consulting actuaries to insure that significant annual payouts will occur throughout the 27 year life of the LIFTs security.
The LIFTs are designed to be issued via prospectus only from top securities broker-dealers.
I was amazed and full of questions when I reviewed the due diligence package on LIFTs and I’m sure most of you will be skeptical as well. But after considerable review, I am convinced that LIFTs make good sense and moreover, may be the answer to many of the problems faced today by both charitable fundraisers and by the defined benefit pension community.
If any of you in my blogosphere are curious about LIFTs and want more information, please contact me at (630) 834-2210 Ext 240. I’ll walk you through how it works in detail.