Why consider life insurance as a possible donation vehicle? Life insurance can be a particularly versatile and valuable asset to give to a charity. The greatest advantage of a gift of life insurance is that a donor can make a substantially larger gift to charity by using life insurance than by giving any other asset. In addition, a charity owning a life insurance policy has the option of accessing the policy cash value, if any, with loans or withdrawals or by holding the policy for the death benefit.
Relatively modest annual premiums mature in a substantial death benefit at the donor’s death. This is further enhanced by the income tax charitable deduction the donor receives. The donor’s gift essentially costs the donor less. For example, for a donor in the 30% tax bracket, a gift of $1,000 really costs $700 after the income tax charitable deduction.
Gift of an Existing Policy
The gift of an existing policy is relatively “painless” to the donor in several respects. The transfer is simple; all that is required to complete the transfer is a completed change of ownership form for the policy. Absent a loan on the policy, the donor does not recognize income no matter how large the gain. In addition, because a policy is not an asset generally used by a donor for current income; it is not often perceived as a “loss of an asset.”
Benefit to Bent Tree Foundation
A life insurance policy requires less administration than almost any other asset. In addition, the Foundation can easily take advantage of cash values in the policy before the donor’s death by using loans or withdrawals. Both the cash value buildup and the death benefit are generally tax-free to the Foundation.
The death benefit, whether from a policy owned by the Foundation or with the Foundation as beneficiary, is received by the Foundation without reduction for estate or income taxes and is not subject to the delays and expenses of probate. The death benefit is less likely to be contested by the donor’s beneficiaries than other assets.
Look for future “Foundation Cornerstones” to learn more about other donation options to the Bent Tree Foundation.
Neither the Bent Tree Foundation, its Board of Directors, or other affiliated associates provide financial or legal advice. Any use of ideas from this, or any other columns, should be professionally guided from legal and/or financial advisors.