Method and system for generating endowment for a tax-exempt organization

• US 20040019506A1
• Filed: 07/23/2002
• Published: 01/29/2004
• Est. Priority Date: 07/23/2002
• Status: Abandoned Application

• Current Assignee: Brian P. Struchtemeyer, Melissa K. Struchtemeyer, Ralph E. Struchtemeyer
• Original Assignee: Brian P. Struchtemeyer, Melissa K. Struchtemeyer, Ralph E. Struchtemeyer
• Inventors: Struchtemeyer, Brian P., Struchtemeyer, Ralph E., Struchtemeyer, Melissa K.
• Application Number:
  US10/201,421
• Publication Number:
  US 20040019506A1
• Time in Patent Office: Days
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

A program for generating new endowment for a tax-exempt organization. Life insurance policies are purchased for a group of suitable donor individuals, with the tax-exempt organization as the beneficiary. A finance company lends money to the tax-exempt organization in amounts sufficient to pay the annual life insurance premiums, and a secondary bank lends further money to the tax-exempt organization to cover the interest that accumulates annually on the premium loans. Upon the death of a donor individual, the policy death benefit is used in several ways: a predetermined fixed amount is set aside and used to pay the interest loan; a predetermined priority portion of the remainder is used to pay the premium loans; and, after the premium loans have been paid in full, any remaining balance is accumulated as new endowment. A Monte Carlo simulation is used to predict the program'"'"'s performance.

Claims

1. A method for generating new endowment for a tax-exempt organization, the method comprising the steps of:

identifying a plurality of donor individuals;

purchasing a plurality of life insurance policies, one for each of the donor individuals, each policy having associated therewith an annual premium and a death benefit, wherein the tax-exempt organization is the beneficiary of each policy; and

obtaining a premium loan from a first financing entity to the tax-exempt organization, said premium loan being sufficient to pay the premiums cumulatively due for the plurality of life insurance policies, wherein interest accumulates on the premium loan to create a premium loan balance;

wherein, upon the death of each donor individual, a predetermined priority portion of the death benefit of the respective life insurance policy is used to pay down the premium loan balance, and any remaining amount of said death benefit is accumulated in the new endowment of the tax-exempt organization.

2. The method of claim 1, wherein fifty donor individuals are identified and insured.

3. The method of claim 1, wherein all of the donor individuals initially are in the age range 70-75.

4. The method of claim 1, wherein none of the donor individuals are table rated due to health, occupation or avocation.

5. The method of claim 1, wherein until the premium loan balance is reduced to zero the predetermined priority portion of the death benefit used to pay down the premium loan balance is 100%.

6. The method of claim 1, wherein each life insurance policy also has associated therewith a cash surrender value, the method further comprising the steps of:

determining a collateral amount that is applicable to secure said premium loan balance; and

assigning assets of the tax-exempt organization as collateral against the premium loan balance in favor of the first financing entity, said assignment continuing at least until the cumulative cash surrender value of the policies exceeds the collateral amount.

7. The method of claim 1, wherein the premium loan balance is increased annually at least in an amount necessary to pay the cumulative premiums due to maintain the policies of all surviving donor individuals, and is decreased annually at least in an amount paid down cumulatively from death benefits from the policies of donor individuals deceased during said annual period.

8. The method of claim 1, further comprising the step of:

obtaining an interest loan from a second financing entity to the tax-exempt organization, said interest loan being sufficient to pay the interest accumulated annually on the premium loan, wherein secondary interest accumulates on the interest loan to create an interest loan balance;

wherein, upon the death of each donor individual, a predetermined fixed amount of the death benefit of the respective life insurance policy is used to pay down the interest loan balance, a predetermined priority portion of said death benefit is used to pay down the premium loan balance, and any remaining amount of said death benefit is accumulated in the new endowment of the tax-exempt organization.

9. The method of claim 8, wherein the interest loan balance is paid down to zero each annual period using, in order of priority, death benefits from the policies of donor individuals deceased during said annual period, funds accumulated in the new endowment of the tax-exempt organization, and other assets of the tax-exempt organization.

10. The method of claim 8, wherein the predetermined fixed amount of the death benefit used to pay down the interest loan balance is $75,000.

11. The method of claim 8, wherein until the premium loan balance is reduced to zero the predetermined priority portion of the death benefit used to pay down the premium loan balance is 100% of said benefit remaining after subtraction of the predetermined fixed amount.

12. The method of claim 1, further comprising the step of using a Monte Carlo simulation to predict the growth of new endowment to be generated for the tax-exempt organization.

13. The method of claim 12, wherein the Monte Carlo simulation comprises the operations of:

(a) specifying a fixed term of years for the simulation;

(b) randomly assigning a simulated starting age for each of the plurality of donor individuals for the initial year of the simulation;

(c) randomly determining for each of the plurality of donor individuals a simulated year of death during the term of the simulation, said determination utilizing the randomly assigned simulated starting age and real-world mortality tables;

(d) calculating the growth of the endowment over the term of the simulation, said calculation utilizing at least the randomly determined simulated death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(e) repeating operations (b)-(d) a plurality of times; and

(f) determining a predicted average growth result for the endowment over the term of the simulation.

14. The method of claim 13, wherein the randomly assigned interest rate is in the range of 6-9%.

15. The method of claim 13, wherein the randomly assigned annual investment return is in the range of 4.5-7.5%.

16. A Monte Carlo system for predicting the growth results of a program for generating new endowment for a tax-exempt organization, said program including, at least, the purchase of a life insurance policy having an associated death benefit for each of a plurality of donor individuals whereas the tax-exempt organization is the beneficiary of each such policy, the grant of a premium loan from a first financing entity to the tax-exempt organization whereas interest accumulates on the premium loan to create a premium loan balance, and, upon the death of each donor individual, the use of a predetermined priority portion of the death benefit of the respective life insurance policy to pay down the premium loan balance until reduced to zero whereas any remaining money from said death benefit is accumulated in the new endowment of the tax-exempt organization, the Monte Carlo system comprising the operations of:

(a) specifying a fixed term of years for the program;

(b) randomly assigning a starting age to each of the donor individuals for the initial year of the program;

(c) randomly determining for each donor individual a year of death during the term of the program, said determination utilizing the randomly assigned starting age and real-world mortality tables;

(d) calculating the growth result of the endowment over the term of the program, said calculation utilizing at least the randomly determined death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(e) repeating operations (b)-(d) a plurality of times; and

(f) determining a predicted average growth result for the endowment over the term of the program.

17. The Monte Carlo system of claim 16, wherein it is assumed there are fifty donor individuals for the program.

18. The Monte Carlo system of claim 16, wherein each of the donor individuals is randomly assigned a starting age in the range 70-75.

19. The Monte Carlo system of claim 16, wherein it is assumed that none of the donor individuals are table rated due to health, occupation or avocation.

20. The Monte Carlo system of claim 16, wherein the randomly assigned interest rate is in the range of 6-9%.

21. The Monte Carlo system of claim 16, wherein the predetermined priority portion of the death benefit used to pay down the premium loan balance until reduced to zero is assumed to be 100%.

22. The Monte Carlo system of claim 16, wherein the randomly assigned annual investment return is in the range of 4.5-7.5%.

23. The Monte Carlo system of claim 16, wherein the fixed term of the program is specified to be forty years.

24. The Monte Carlo system of claim 16, wherein the predetermined death benefit amount assumed for each life insurance policy varies based upon the starting age and the death age of the respective donor individual.

25. The Monte Carlo system of claim 16, wherein operations (b)-(d) are repeated at least 10,000 times.

26. The Monte Carlo system of claim 16, with the program further including the grant of an interest loan from a second financing entity to the tax-exempt organization whereas secondary interest accumulates on the interest loan to create an interest loan balance, such that, upon the death of each donor individual, a predetermined fixed amount of the death benefit of the respective life insurance policy is used to pay down the interest loan balance and a predetermined priority portion of said death benefit is used to pay down the premium loan balance until reduced to zero whereas any remaining money from said death benefit is accumulated in the endowment of the tax-exempt organization, wherein the growth result prediction operation of the Monte Carlo system further utilizes a randomly assigned secondary interest rate applicable to the interest loan balance and the predetermined fixed amount of the death benefit to be used to pay down the interest loan balance.

27. The Monte Carlo system of claim 26, wherein the randomly assigned secondary interest rate is in the range of 6-9%.

28. The Monte Carlo system of claim 26, wherein the predetermined fixed amount of the death benefit used to pay down the interest loan balance is $75,000.

29. The Monte Carlo system of claim 16, wherein the operation of randomly determining a year of death for each donor individual comprises the steps of:

(1) assigning a different random number in the range 0-1000 to each donor individual for the first year of the program;

(2) for each donor individual, comparing their assigned random number to a number of deaths per 1000 people predicted by a real-world mortality table applicable to said individual according to said individual'"'"'s randomly assigned starting age;

(3) assuming that a donor individual will die during the first year of the program if their assigned random number is less than or equal to the predicted number of deaths;

(4) incrementing by one the year of the program and the age of each surviving donor individual, and assigning a different new random number in the range 0-1000 to each surviving donor individual;

(5) for each surviving donor individual, comparing their new assigned random number to a new number of deaths per 1000 people predicted by a real-world mortality table applicable to said individual according to the individual'"'"'s incremented age;

(6) assuming that a donor individual will die during the incremented year of the program if their new assigned random number is less than or equal to the new predicted number of deaths; and

(7) repeating steps (4)-(6) until a year of death has been determined for each donor individual.

30. The Monte Carlo system of claim 16, further including a worst-case analysis of the program, said worst-case analysis comprising:

(g) specifying a fixed term of years for the program;

(h) randomly assigning a starting age to each of the donor individuals for the initial year of the program;

(i) randomly determining for each donor individual a year of death during the term of the program, said determination utilizing the randomly assigned starting age and real-world mortality tables adjusted to target an average death age greater by approximately 3.5 years compared to normal mortality;

(j) calculating the growth result of the endowment over the term of the program, said calculation utilizing at least the randomly determined death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(k) repeating operations (h)-(j) a plurality of times; and

(l) determining a predicted worst-case growth result for the endowment over the term of the program.

31. The Monte Carlo system of claim 30, wherein operations (h)-(j) are repeated at least 10,000 times.

32. The Monte Carlo system of claim 30, wherein the randomly assigned interest rate is in the range of 6-9%.

33. The Monte Carlo system of claim 30, wherein the randomly assigned annual investment return is in the range of 4.5-7.5%.

34. The Monte Carlo system of claim 16, further including a best-case analysis of the program, said best-case analysis comprising:

(g) specifying a fixed term of years for the program;

(h) randomly assigning a starting age to each of the donor individuals for the initial year of the program;

(i) randomly determining for each donor individual a year of death during the term of the program, said determination utilizing the randomly assigned starting age and real-world mortality tables adjusted to target an average death age shorter by approximately 3.5 years compared to normal mortality;

(j) calculating the growth result of the endowment over the term of the program, said calculation utilizing at least the randomly determined death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(k) repeating operations (h)-(j) a plurality of times; and

(l) determining a predicted best-case growth result for the endowment over the term of the program.

35. The Monte Carlo system of claim 34, wherein operations (h)-(j) are repeated at least 10,000 times.

36. The Monte Carlo system of claim 34, wherein the randomly assigned interest rate is in the range of 6-9%.

37. The Monte Carlo system of claim 34, wherein the randomly assigned annual investment return is in the range of 4.5-7.5%.

38. A computer-readable medium having instructions for performing a method for generating endowment for a tax-exempt organization, the method comprising,the steps of:

identifying a plurality of donor individuals;

purchasing a plurality of life insurance policies, one for each of the donor individuals, each policy having associated therewith an annual premium and a death benefit, wherein the tax-exempt organization is the beneficiary of each policy; and

obtaining a premium loan from a first financing entity to the tax-exempt organization, said premium loan being sufficient to pay the premiums cumulatively due for the plurality of life insurance policies, wherein interest accumulates on the premium loan to create a premium loan balance;

wherein, upon the death of each donor individual, a predetermined priority portion of the death benefit of the respective life insurance policy is used to pay down the premium loan balance, and any remaining amount of said death benefit is accumulated in the new endowment of the tax-exempt organization.

39. The computer-readable medium of claim 38, wherein the method further comprises the step of using a Monte Carlo simulation to predict the growth of new endowment to be generated for the tax-exempt organization.

40. A computer-readable medium having instructions for providing a Monte Carlo system for predicting the growth results of a program for generating new endowment for a tax-exempt organization, said program including, at least, the purchase of a life insurance policy having an associated death benefit for each of a plurality of donor individuals whereas the tax-exempt organization is the beneficiary of each such policy, the grant of a premium loan from a first financing entity to the tax-exempt organization whereas interest accumulates on the premium loan to create a premium loan balance, and, upon the death of each donor individual, the use of a predetermined priority portion of the death benefit of the respective life insurance policy to pay down the premium loan balance until reduced to zero whereas any remaining money from said death benefit is accumulated in the new endowment of the tax-exempt organization, the Monte Carlo system comprising the operations of:

(a) specifying a fixed term of years for the program;

(b) randomly assigning a starting age to each of the donor individuals for the initial year of the program;

(c) randomly determining for each donor individual a year of death during the term of the program, said determination utilizing the randomly assigned starting age and real-world mortality tables;

(d) calculating the growth result of the endowment over the term of the program, said calculation utilizing at least the randomly determined death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(e) repeating operations (b)-(d) a plurality of times; and

(f) determining a predicted average growth result for the endowment over the term of the program.

41. The computer-readable medium of claim 40, with the program further including the grant of an interest loan from a second financing entity to the tax-exempt organization whereas secondary interest accumulates on the interest loan to create an interest loan balance, such that, upon the death of each donor individual, a predetermined fixed amount of the death benefit of the respective life insurance policy is used to pay down the interest loan balance and a predetermined priority portion of said death benefit is used to pay down the premium loan balance until reduced to zero whereas any remaining money from said death benefit is accumulated in the endowment of the tax-exempt organization, wherein the growth result prediction operation of the Monte Carlo system further utilizes a randomly assigned second interest rate applicable to the interest loan balance and the predetermined fixed amount of the death benefit to be used to pay down the interest loan balance.

42. A method for administering a program for generating new endowment for a tax-exempt organization, the method comprising the steps of:

assisting the tax-exempt organization in identifying a plurality of donor individuals;

assisting the tax-exempt organization in purchasing a plurality of life insurance policies, one for each of the donor individuals, each policy having associated therewith an annual premium and a death benefit, wherein the tax-exempt organization is the beneficiary of each policy;

assisting the tax-exempt organization in obtaining a premium loan from a first financing entity, said premium loan being sufficient to pay the premiums cumulatively due for the plurality of life insurance policies, wherein interest accumulates on the premium loan to create a premium loan balance; and

upon the death of a donor individual, assisting the tax-exempt organization in processing the respective life insurance claim, in using a predetermined priority portion of the death benefit of the respective life insurance policy to pay down the premium loan balance and in accumulating any remaining amount of said death benefit in the new endowment of the tax-exempt organization.

43. The method of claim 42, further comprising the step of using a Monte Carlo simulation to predict the growth of new endowment to be generated for the tax-exempt organization.

44. A method for administering a Monte Carlo simulation for predicting the growth results of a program for generating new endowment for a tax-exempt organization, said program including, at least, the purchase of a life insurance policy having an associated death benefit for each of a plurality of donor individuals whereas the tax-exempt organization is the beneficiary of each such policy, the grant of a premium loan from a first financing entity to the tax-exempt organization whereas interest accumulates on the premium loan to create a premium loan balance, and, upon the death of each donor individual, the use of a predetermined priority portion of the death benefit of the respective life insurance policy to pay down the premium loan balance until reduced to zero whereas any remaining money from said death benefit is accumulated in the new endowment of the tax-exempt organization, the method comprising the steps of:

(a) assuming a fixed term of years for the program;

(b) randomly assigning a starting age to each of the donor individuals for the initial year of the program;

(c) randomly determining for each donor individual a year of death during the term of the program, said determination utilizing the randomly assigned starting age and real-world mortality tables;

(d) calculating the growth result of the endowment over the term of the program, said calculation utilizing at least the randomly determined death year for each donor individual, predetermined premium schedules for the life insurance policies, predetermined death benefit amounts for the life insurance policies, a randomly assigned interest rate applicable to the premium loan balance, the predetermined priority portion of the death benefit to be used to pay down the premium loan balance until reduced to zero, and a randomly assigned annual investment return for the money in the endowment;

(e) repeating operations (b)-(d) a plurality of times;

(f) determining a predicted average growth result for the endowment over the term of the program; and

(g) reporting the predicted average growth result for the endowment to the tax-exempt organization.