2014 Giving Guide: Morris Financial Group, Inc. (Kansas City Life)

Charitable giving through the use of life insurance is a giving technique that many people are not aware of. While there is not an immediate benefit for the charitable organization, a gift of life insurance can provide a deferred gift much larger than the contribution.

Through a gift of life insurance, you can make a substantial future gift to a charity at an affordable cost. There are several ways to make a gift of life insurance. If you have a life insurance policy you no longer need, you can contribute it to a charity by naming the charity as the policy owner and beneficiary. You receive an immediate charitable income tax deduction equal to the cash value of the policy. If you choose to give the charity money to pay future premium payments, those cash donations are also eligible for a charitable income tax deduction. At death, the life insurance proceeds are not included in your estate for federal estate tax purposes. Alternatively, you can purchase a new insurance policy on your life, name the charity as owner and beneficiary, and arrange to make cash donations to the charity for premium payment purposes. They can be given over a period of time or in a single premium. Those cash donations to the charity for premium payments are then deductible on your income tax return. At death, the life insurance proceeds are not included in your estate for federal estate tax purposes. Finally, you can simply name a charity the beneficiary of a life insurance policy you continue to own. In this instance, there is no charitable income tax available, but the proceeds of the policy at your death will not be included in your estate for federal tax purposes.

In each year for which a gift is made, whether the gift of a life insurance policy or cash gifts to pay policy premiums, you should receive a receipt from the charity that shows your name, the date the gift was made, a description of the life insurance policy (including the policy number, name of the insurance company and the face amount of the policy) and whether you received any goods or services in return for the gift. If you did receive goods and services in return for the gift, the receipt should state what they were and provide an estimate of their value.

There are many advantages of charitable giving. The annual cash gifts or single premiums you give the charity for payment purposes are eligible for the charitable income tax deduction. If you make those gifts in the form of appreciated property (e.g., stock), the charity can sell the property and avoid paying capital gains tax. The cost to you to provide your gift may be less than the amount the charity ultimately receives.

Gifts of cash and income property are generally deductible up to 50% of the donor’s adjusted gross income. Charitable contributions in excess of the percentage limitations can be carried over and deducted for up to five succeeding years.

A gift of life insurance can enable you to make a much larger charitable gift than you might otherwise be able to afford. You can select a life insurance policy with a premium amount that fits your budget.