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| Saint
Mary's College Planned and Special Gifts 110 Le Mans Saint Mary's College Notre Dame, IN 46556 574/284 4600 Fax 574/284-4749 jamacken@saintmarys.edu Planned Giving |
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Gifts of
Life Insurance There are several ways you can use life insurance as the basis for a charitable gift. Making the charity a beneficiary of your Life Insurance PolicyYou may wish to make the charity the beneficiary (or a contingent beneficiary) of a life insurance policy as a way to make a sizeable future gift. You retain lifetime ownership of the policy, keeping the right to cash it in, borrow against it, and change the beneficiary. A gift of this nature is treated much like a bequest made through your will. Because you retain the ownership of your asset (the policy), you will not receive an income tax charitable deduction for this future gift or for your premium payments during your lifetime. The policy's proceeds will be included in your gross estate, and your estate can take an estate tax charitable deduction. Making a gift of your policyYou may wish to transfer ownership of a policy to the charity, or purchase a new policy with the charity as owner and beneficiary. If you make a charity the owner and beneficiary of a policy, you are entitled to certain tax advantages. Example: The Walker children were very supportive of the idea. In fact, one of their children purchased a small whole life policy and designated the charity as the owner and irrevocable beneficiary. As a result, the annual premiums that are paid are a charitable deduction. Wealth Replacement using life insurance A donor may make
a current gift to charity and receive a charitable tax deduction. At the
same time, the donor may purchase life insurance to replace the donated
amount or perhaps, the amount after estate tax that the beneficiaries
would have received. Depending on the circumstances, the charitable tax
savings and any life income resulting from the gift may defray the cost
of the wealth replacement insurance premiums. Example:John Abbott, age 60, wants to make a gift that will ultimately be used to purchase equipment for a charity he has supported for years, but he is also concerned for his children and their futures. He creates a 6 percent Charitable Remainder Unitrust for $100,000, which yields a tax savings to him of $13,307. He then purchases a $100,000 whole life insurance policy that will maintain his children's inheritance. His annual premium payments are $4,500, which he pays for the first three years from his tax savings and subsequently with the increased income from his trust. Creating a Life Insurance TrustYou may want to set up an Irrevocable Life Insurance Trust (ILIT). An ILIT removes the life insurance from your estate to help reduce estate tax while providing other benefits. For example, upon one's death, the proceeds of the life insurance policy may remain in the trust to provide income for the surviving spouse, but stays outside of the spouse's estate for estate tax purposes. Or, the trust could be used to distribute proceeds to children of a previous marriage. Although ILITs can be expensive and more complicated than owning life insurance directly, they may be an attractive option in certain situations. As with all matters concerning estate planning, please consult your estate and tax specialists. Click here to return to Wills and Bequests. Click here to return to Wills and Bequests. Please note, individual
financial circumstances will vary. The information on this site does not
constitute legal or tax advice. As with all tax and estate planning, please
consult your attorney or estate specialist. All
material is copyrighted and is for viewing purposes only. Use of this
site signifies your agreement with the terms of
use. This Planned Giving section has been developed for Saint
Mary's College by Future Focus.
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©
2004 Saint Mary's College
Development Office
Since
their children had grown up and begun lives on their own, the Walkers
decided to review their finances. They realized that some of the insurance
they carried while the children were dependent on them was now not really
needed. They decided to donate a fully paid-up policy to charity. Their
financial advisor told them that as the policy is paid-up, they are entitled
to a charitable deduction equal to the lessor of the premiums they paid
over the life of the policy or the cost of a comparable replacement policy
if purchased today.