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Life insurance is typically purchased to protect a family from financial loss during the “income earning” years. Once a donor has moved through this stage of life, a life insurance policy may become an asset that is not needed as part of a retirement or Estate Plan. It can still, however, be of great benefit to a charity.
In such cases a donor can name a charity as the beneficiary of a life insurance policy so that the charity will receive all or part of a policy death benefit. Another solution which can have even more significant benefits to the donor and the charity is to make the charity the owner and beneficiary of the policy. This type of gift may provide significant current tax benefits for the donor in which the lesser of the policy value or its cost basis becomes deductible under IRS rules. It also provides the charity with a gift during the lifetime of the donor.
The Benefits
- A substantial income tax deduction when an insurance policy’s ownership is transferred to The Fellowship
- Possible reduction of estate taxes (insurance proceeds would be excluded in estate value for purposes of estate taxes)
- Ability to create a legacy gift to The Fellowship
Download or request a free copy of The Fellowship’s Planned Giving Ideas and Options Guide>>
The Davis’ Gift of Life Insurance Story
John and Mary Davis, who are in their early 60’s, own a second-to-die whole life policy that they have determined they do not need for their retirement. After contacting the insurance company, they learn that the policy's value is $400,000. John and Mary have paid annual premiums of $10,000 for 25 years. Their basis in the policy is $250,000 (25 x $10,000 annual premium). John and Mary contribute the policy to The Fellowship, which then becomes the owner of the policy. The Davises are entitled to a charitable deduction of $250,000, subject to annual limitations. With ownership of the policy, The Fellowship can surrender it to the insurance company. Assuming no surrender or administrative charges, The Fellowship will receive $400,000.
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