Donate your Life Insurance Benefit to Charity

There is nothing more morally fulfilling than helping someone in need.  There are thousands of charities that help people, children, animals and many other causes. Life insurance is a very good way to make tax deductible charitable contributions.   It maximizes tax and estate benefits at a relatively low cost to the donor and to the donor’s descendants.

When Jesus heard this, He said to him, “One thing you still lack; sell all that you possess and distribute it to the poor, and you shall have treasure in heaven; and come, follow Me.” Luke 18:22

Naming the Charity as a Beneficiary

This is a very simple method for charitable giving. Permanent cash value life insurance provides a death benefit, which is larger than the money invested. If the charity is a beneficiary the proceeds will be subject to estate taxes. However, the unlimited federal estate tax charitable deduction will completely offset that 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.

Donate a New Life Insurance Policy to Charity

An absolute assignment, or gift, of a new life insurance policy on the donor’s life, can be made to the charity, after the charity is also named as an irrevocable beneficiary.  This will award the charity the significant gift of the death benefit and also insure that it is given, if the donor meets an untimely death. The gift is expanded (the death benefit significantly exceed premiums paid into it) 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

Members that have lost a direct need for life insurance, may elect to donate an existing life insurance policy to a charity.  This will create immediate ordinary income tax deductions in the amount of the policy’s fair market value, or cost basis (to be calculated by your tax professional) 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.

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 and immediately upon the donor’s death. There will be no 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 may want to make significant one-time contributions of real or personal property, but decide against it because they worry about disinheriting or upsetting their heirs.  Our 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 also receive an appropriate charitable deduction, which would, in turn, help to 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 can deposit the 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 annuity assets, after it has paid an income stream to the donor.

IRA Qualified Charitable Distribution

IRA owners aged 70½ and over, can make Qualified Charitable Distribution IRA-RMD’s. Using this provision can result in significant tax savings, as much as 40%, depending upon the individual’s circumstances. An individual can directly distribute up to $100,000 of their IRA each year to a qualified charity. The tax advantage exists in making the Qualified Charitable Distribution count toward the individual’s Required Minimum Distribution for that year, while the donation amount reduces the adjusted gross income (AGI).  Thus the member who itemizes deductions can avoid the phase out of such deductions, while the member who does not itemize can directly reduce taxable income. Some taxpayers can reduce taxes on social security taxable benefits, while all taxpayers can reduce the Medicare tax.

Please note: The distribution must be made directly from a trustee of the IRA funds to a qualified organization eligible to receive tax-deductible contributions. There are some exceptions. Your financial planner or tax preparer should be consulted. The member will not get the same tax benefit if they take the distribution and then donate to the qualified charity.

There are tons of charities, or you can donate to your church, or Ukrainian organization. For more information, Contact Us.