Maximization Of Charitable Contributions

Life insurance is an excellent tool for making charitable gifts. Through a relatively small annual cost (the premium), a benefit far in excess of what would otherwise be possible can be provided for charity. This sizable gift can be made without impairing or diluting other investments, and assets earmarked for family members can be kept intact.

There are a number of methods for including life insurance in a charitable gift plan:

  • Make an absolute assignment (i.e., a gift) of a life insurance policy currently owned, donate a new life insurance policy, or have the charity purchase life insurance on the donor’s life and pay the premiums (assuming insurable interest and state law permits). Each of these options allows a current income tax deduction.
  • Name a charity as the primary or contingent beneficiary of an existing or new life insurance policy. Although this will not yield a current income tax deduction, it will result in a federal estate tax deduction for the full amount paid to the charity, regardless of policy size.
  • Use group life insurance to meet charitable giving objectives.
  • One of the most popular ways to utilize life insurance in charitable planning is through “wealth replacement.” In this situation, life insurance makes it possible for a donor to make an immediate or deferred gift of land, stock, or other property while still providing an acceptable family inheritance.

Most estate planning techniques become even more effective when coupled with other strategies. By giving appreciated long term capital gain property (stocks, real estate, mutual funds, etc.) to the charity, the donor can often avoid capital gains tax and receive a deduction for full market value. (There are notable exceptions to this, however, which we would discuss with you.) That deduction may also free-up cash to then fund a life insurance policy, creating an even larger gift.

All of these options require a great deal of analysis on a case-by-case basis. The RBR team will work closely with your estate attorney, CPA, and financial advisor to ensure a coordinated plan to help you achieve your goals.

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