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A Life insurance policy is an excellent tool for charitable giving. Not only does it allow you to make a substantial donation to charity at no cost to you, but you may also benefit from tax rules that apply to gifts of life insurance.
With the guidance and support of your favorite charity and the approval of your legal and/or tax advisors, along with the support of your family, you can create something very exclusive that is reserved for a select group of eligible individuals.
It can be a life insurance policy that has provided its original purpose, some examples are: a spouse who has past away and no longer needs it, a grown child who is financially independent or to protect a business that no longer exists. It can also be a new policy purchased specifically to benefit your favorite charity; a gift of life insurance can enable you to leave a much greater gift to your favorite charity than may have been possible during your lifetime.
There are at least four different ways in which you can structure a gift of life insurance to your favorite charity:
1. You can make your favorite charity a beneficiary of an existing life insurance policy. Upon your passing, the full face value amount of the policy will go to your favorite charity. Although the proceeds from the policy will be included in your gross estate, the full amount received by your favorite charity may be deductible as a charitable deduction. To make your favorite charity a beneficiary of an existing life insurance policy, you can simply request a beneficiary designation form from your employer or insurance company. Most forms require the following information:
€ Your favorite charity full legal name:
€ Your favorite charity permanent mailing address:
€ Your favorite charity federal tax identification number:
€ Your relationship to the beneficiary: Charity
2. You can make your favorite charity the owner and beneficiary of an existing paid-up life insurance policy. By doing so, you may be able to deduct an amount equal to the fair market value of the policy, or your cost basis, whichever is less. Since your favorite charity becomes the owner of the policy, the proceeds will not be included in your estate for tax purposes.
3. You can make your favorite charity the owner and beneficiary of a policy on which you are still paying premiums. You may be able to deduct an amount equal to the approximate cash value of the policy or the policy's cost basis, whichever is less, in the year in which you give the gift. You may also be able to deduct any future premium payments, and the proceeds will not be included in your estate for tax purposes.
4. You can purchase a new policy and make your favorite charity the owner and beneficiary. Because your favorite charity is the owner, you may be able to deduct premium payments as charitable contributions for as long as the premiums are paid, Subject to state limitations. In addition, the proceeds will not be included in your estate for tax purposes.
Life insurance is a flexible charitable giving tool that can be utilized to suit your individual financial needs while also substantially supporting your favorite charity's programs.
If you are thinking about a donation of life insurance to a charity, I encourage you to consult with your legal advisor and/ or tax advisor to help you decide on the best approach for you. It is important to note that some states don't consider a charity to have insurable interest in its donors lives.
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