Many of our readers likely are inclined to make substantial gifts to their churches or other qualified charities. Not only do such donations reward the donor in psychological and moral ways, but they also generate significant income and/or estate tax savings. Life insurance creates an “expanded estate” and is recognized as a very important vehicle for maximizing all of these benefits at the least possible cost to the donor and to the donor’s descendants.
Naming the Charity as a Beneficiary. This is a very simple method for charitable giving. Because permanent whole life insurance is designed to provide a death benefit larger than the monies invested into it, the gift to charity is expanded – it is larger than the outright gift of the monies invested into it would otherwise have been. Because the policy will not have been transferred outright to the charity, the proceeds are subject to estate taxes. However, the unlimited federal estate tax charitable deduction will completely offset that estate tax liability. . In an unexpected financial pinch, you can remove the charity as beneficiary and enjoy the fruits of the policy for yourself and your heirs.
Transfer of a New Life Insurance Policy to Charity. An absolute assignment (gift) of a new life insurance policy on the donor’s life can be made to the charity, in which case the charity would also be named as the irrevocable beneficiary. This will not only award the charity the significant expanded gift of the death benefit, but will also insure that that gift is given, even if the donor meets an untimely death. The gift is both expanded and guaranteed. By the same token, the donor can deduct the premiums, thereby dramatically reducing the cost of his gift. Viewed from another perspective, the donor can make a dramatic gift on an installment plan and also enjoy the deductions that are created by the payments.
Transfer of an Existing Life Insurance Policy to Charity. Those insureds that might have lost a direct need for life insurance can elect to donate an existing life insurance policy to a charity. This will create an immediate ordinary income tax deduction in the amount of the policy’s cash value and will also generate charitable deductions in the amounts of future premiums paid. This is a very desirable alternative to cash surrendering the policy and incurring the ordinary income tax consequences of such an action.
Immediate Payment to the Charity Outside of Probate and Estate Taxes. If the donor survives for three years after donating a policy to charity, the death benefit will be payable to the charity directly, immediately upon the donor’s death, without the hassles of probate and without the imposition of any estate taxes.
Life Insurance Can Cover the Value of Large Charitable Gifts of Property. Many of our members might want to make significant one-time contributions of real or personal property, but decide against them because they worry about disinheriting or upsetting their heirs. Will their children have sufficient funds for emergency or lifestyle needs? Will there be enough for the grandchildren’s educations? Will the heirs feel slighted if money is left to charity instead of to them?
One solution is to purchase life insurance to cover the gap. Each year the donor member would not only have the joy of charitable giving, but would receive an appropriate charitable deduction, which benefit would help defray the future costs of the annual premiums.
Annuity Savings Plan Gift.
Donors that might need a supplemental income stream can make use of an annuity for his or her charitable giving plans. The donor would place his or her gift into an annuity and, at the appropriate time, request an income stream from it. Your Providence representative can design an income stream that will guarantee an ultimate sizeable gift of principal remaining after the donor’s death. As an appointed irrevocable beneficiary, the church or charity would receive the annuities assets, after it has paid an income stream to the donor.