A growing number of Americans are saving more money than they're likely to spend in their lifetimes. For advisors, it's a good time to talk to such clients about endowing a college scholarship, getting their name on a hospital wing, donating an art collection to a museum or leaving any other kind of legacy behind. It's not only good business for the advisor, but it can help the clients make the most of their gift.

By working with a client's accountant and estate lawyer, an advisor can reduce his client's taxes and increase his deductions while preserving his heirs' inheritance, even as he gives away money or other valuables. Advisors don't do too badly either. They have the opportunity to increase their involvement in their clients' financial affairs while making a good deal of money, perhaps by managing an endowment fund.

There are no tricks involved. What it takes, though, is for your client to buy insurance and create two trusts. Specifically, they need a charitable remainder trust (CRT), an irrevocable life insurance trust (ILIT) and permanent life insurance.

Giving a Gift Later That Adds Up Now

Clients receive numerous benefits by making a charitable donation through a CRT, which essentially holds the gift in trust for the beneficiary until the donor dies. Among the most significant benefits, financially, are two tax advantages. For one thing, by having the donation held in trust for the charitable organization clients avoid taxes that they would eventually pay on the assets. That's the charitable organization's responsibility. Better still, the advisor's client is in line to get a huge tax deduction. This tax savings is far greater than a gift of cash from current income because the client will benefit from the lower capital-gains tax rate. The following example shows how:

An advisor's client has an adjusted gross income (AGI) of $150,000 and, consequently, will almost certainly be subject to the alternative minimum tax (AMT), meaning many deductions will vanish and a higher tax rate will be applied. But charitable contributions and deductions should not be affected, making them even more valuable than under the normal tax schedule. If your client is going to owe about 20 percent due to the AMT and another 15 percent — rising to as much as 35 percent after 2009 — in capital-gains taxes, the charitable deduction is a huge savings. If your client gives artworks worth $250,000 to charity, the capital-gains tax savings could be as high as 35 percent. In addition, the allowable deduction would be half of the AGI or $75,000.

Besides tax benefits the donor also receives an income from the assets in the CRT donation, which points to one of the principal benefits for the advisor from the creation of the trust. While the money now belongs to the charity, the advisor's client still has control over it and the funds will likely become part of the investment portfolio that the advisor already manages.

Not Losing What Was Given Away

Even though an advisor's client has given away money, the client's heirs need not lose a cent and might even benefit from the donation if an irrevocable life insurance trust (ILIT) is established and funded with life insurance.

The premise is simple — an advisor's client needs to buy enough permanent life insurance to cover estimated estate taxes and replace the assets that were donated to charity. By placing the insurance in the ILIT the asset is outside of the estate. Since life insurance is normally not subject to estate taxes, the full amount is available to the heirs to replace the donation and pay taxes on other inherited assets.

In some cases clients even use this approach to create or enlarge an estate, or to equalize an estate when a disproportionate share of assets (such as a business interest) passes to one heir.

Having created the trust, it's time to buy the insurance or, at least, more insurance (i.e., adding funds to an existing permanent life policy will work just as well). If there are two people involved in making the gift, a survivorship whole life insurance plan might be needed. This form of permanent life insurance covers the lives of two individuals in one policy and pays off after the death of the second insured policyholder. As a result, the cost is usually more affordable than purchasing two separate life insurance policies.

That Last Beneficiary: The Advisor

Besides having the opportunity to invest the funds in the CRT, another benefit from advising a client on how best to make a charitable donation is what can be earned selling the insurance to the client. Indeed, that is a very significant benefit. Since it has to be a permanent life product, there is a very large sale involved. Premiums on the associated life insurance sale are based on the age of the client and how much money the policy is for, but can easily run from $25,000 to $50,000 or more annually. The commission would be in the range of at least $10,000.

There also some valuable intangible benefits for advisors. They earn the credit for making the sale of a product that makes many clients feel good about writing such a large check to a charity. The advisor's advice, meanwhile, enables the clients to get the recognition for their generosity during their lifetime, without taking anything away from their heirs.

Everybody wins big.