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Charitable Gifts of Life Insurance
Life insurance has always been an integral part of the comprehensive estate plan. From this ever innovative industry, life insurance has become a valuable asset within the overall financial portfolio now offering competitive rates and as much utility as other assets. Life insurance figures prominently in charitable gift planning as well. Often utilized in wealth replacement estate plans, life insurance policies can also directly benefit charity. With little out-of-pocket expense to donor, a charitable gift of life insurance can provide significantly to charity through an outright gift of a paid-up policy or an outright gift of a whole life policy.
Outright Gift of Paid-Up Life Insurance Policy
A gift of a paid-up life insurance policy can be made by naming the charity as beneficiary and transferring ownership of the policy to the named charity. The donor receives a charitable contribution deduction for the replacement cost of the policy at the time of the gift. Transferring ownership of the policy to charity may reduce a donor’s estate thus avoiding federal estate taxation of the asset. Charity can cash the policy at any time or receive the full death proceeds at donor’s passing free of income or estate taxes.
Outright Gift of a Whole Life Policy
Donor purchases policy naming charity as beneficiary and subsequently transfers ownership of the policy to charity. Donor gives amount equal to annual premium to charity and charity in turn pays the premiums. The gift is made on an “installment” plan and Donor receives a charitable contribution deduction for each annual gift.
Gift is not part of Donor’s taxable estate, and therefore avoids federal estate tax. Gift goes directly to charity and is not subject to probate or attachment by heirs.