Planned Giving
Gifts of Life Insurance
There
are several ways you can use life insurance as the basis for
a charitable gift.
Making
the Charity a Beneficiary of your Life Insurance Policy
You may wish to make the charity the beneficiary (or a
contingent beneficiary) of a life insurance policy as a way
to make a sizable future gift. You retain lifetime ownership
of the policy, keeping the right to cash it in, borrow against
it, and change the beneficiary. A gift of this nature is treated
much like a bequest made through your will. Because you retain
the ownership of your asset (the policy), you will not receive
an income tax charitable deduction for this future gift or
for your premium payments during your lifetime. The policy's
proceeds will be included in your gross estate, and your estate
can take an estate tax charitable deduction.
 Making
a Gift of Your Policy
You may wish to transfer ownership of a policy to the charity,
or purchase a new policy with the charity as owner and beneficiary.
If you make a charity the owner and beneficiary of a policy,
you are entitled to certain tax advantages.
Example:
Since their children had grown up and begun lives on their
own, the Walkers decided to review their finances. They realized
that some of the insurance they carried while the children
were dependent on them was now not really needed. They decided
to donate a fully paid-up policy to charity. Their financial
advisor told them that as the policy is paid-up, they are
entitled to a charitable deduction equal to the lessor of
the premiums they paid over the life of the policy or the
cost of a comparable replacement policy if purchased today.
 The
Walker children were very supportive of the idea. In fact,
one of their children purchased a small whole life policy
and designated the charity as the owner and irrevocable beneficiary.
As a result, the annual premiums that are paid are a charitable
deduction.
Wealth
Replacement Using Life Insurance
A donor may make a current gift to charity and receive a charitable
tax deduction. At the same time, the donor may purchase life
insurance to replace the donated amount or perhaps, the amount
after estate tax that the beneficiaries would have received.
Depending on the circumstances, the charitable tax savings
and any life income resulting from the gift may defray the
cost of the wealth replacement insurance premiums.
Example:
John Abbott, age 60, wants to make a gift that will ultimately
be used to purchase equipment for a charity he has supported
for years, but he is also concerned for his children and their
futures. He creates a 6 percent Charitable Remainder Unitrust
for $100,000, which yields a tax savings to him of $13,307.
He then purchases a $100,000 whole life insurance policy that
will maintain his children's inheritance.  His
annual premium payments are $4,500, which he pays for the
first three years from his tax savings and subsequently with
the increased income from his trust.
Creating
a Life Insurance Trust
You may want to set up an Irrevocable Life Insurance Trust
(ILIT). An ILIT removes the life insurance from your estate
to help reduce estate tax while providing other benefits. For
example, upon one's death, the proceeds of the life insurance
policy may remain in the trust to provide income for the surviving
spouse, but stays outside of the spouse's estate for estate
tax purposes. Or, the trust could be used to distribute proceeds
to children of a previous marriage. Although ILITs can be expensive
and more complicated than owning life insurance directly, they
may be an attractive option in certain situations.
As with
all matters concerning estate planning, please consult your
estate and tax specialists. Click here to return to Wills and Bequests. |
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