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.
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.
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.
Your contact at Dani’s Foundation is:
Martha Simmons
Executive Director, 1600 Broadway, Suite 2400, Denver, CO 80202303.601.1881 – martha@danisfoundation.org
PLEASE NOTE:
Individual financial circumstance will vary. The information on this site does not constitute legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist.
