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Charitable Gifting of Life Insurance

Charitable Gifting of Life Insurance

April 25, 2024

Are you interested in contributing to a charitable organization while taking advantage of tax benefits? Gifting a life insurance policy can provide you with a unique opportunity to do so. In addition to supporting a worthy cause, this gift can potentially result in charitable income tax deductions or a reduction in estate taxes. Generally, these strategies can be executed with minimal legal challenges.

There are three ways to gift a life insurance policy to a qualifying charity: a charitable gift via beneficiary designation, a charitable gift of a policy, and a charity-owned policy. Regardless of the strategy used, policy ownership and beneficiary arrangements will influence the planning process. Consultation with a qualified legal professional can help you clarify your goals and expectations, provide information on the limitations of charitable deductions, and help you achieve the desired results while avoiding unnecessary complications.

Charitable Beneficiary Designation

If you have a life insurance policy and want to support a charity with its proceeds after your death, you may consider making a charitable gift of the proceeds. This allows you to keep control of the policy during your lifetime while designating the charity/charities of your choice as the beneficiary. You will still receive the benefits of owning the policy because you will retain incidents of ownership. It is important to note that there is no immediate income tax benefit for this type of charitable gift. However, upon your death, the charity will receive the full value of the policy proceeds, and your estate will be eligible for a charitable deduction for that amount. 


Charitable Gift of a Paid-Up Policy

Consider making a charitable gift of a life insurance policy to receive an immediate income tax deduction for an existing policy. You change the beneficiary and ownership designations to a preferred charity and get an immediate income tax charitable deduction for the policy. The deduction amount is based on the lower of your cost basis or the policy's value.


Charity-Owned Policy

Making regular cash contributions to a charity can be a great way to turn smaller gifts into a larger endowment. One way to do this is by purchasing a charity-owned life insurance policy, which is made payable to a charity of your choice, where permitted by state law. Technically, the charity pays the policy premiums. To offset this cost, you can make yearly cash gifts to the charity, which may make you eligible to deduct a portion of your charitable donations from your income taxes.