How to Increase Charitable Giving With Life Insurance

If set up properly, a life insurance policy can provide tax advantages for you now, and a lump-sum, income-tax-free benefit for your favorite charity or cause when you die.

Difficulty: Moderate

Instructions

Things You'll Need:

• IRS Forms
• Ledger Books
• File Cabinets
• File Folders
• Tax Preparation Software
• Ledger books

1. Decide how much you would like to give to a favorite cause on an annual basis.

2. Consult with a qualified life insurance agent to determine what kind of death benefit such a gift - as a premium payment to a life insurance policy - might cost to purchase.

3. Contact a representative of your favorite cause who directs the endowment programs for that cause, and discuss this proposed strategy. Carefully considering all aspects - both positive and negative - of gifting money in this manner.

4. Fill out an application for a permanent life insurance policy on your life, naming you as the insured, and the charity or favorite cause as the owner and beneficiary of the policy.

5. Upon successfully completing the underwriting process, have the insurance agent set up a meeting with you and the charity's representative to go over the issued policy and, if the policy is acceptable to all parties, make a donation to the charity in the amount of the policy's premium payment.

6. Obtain a complete photocopy of the insurance policy for your records.

7. Obtain a receipt for your donation documenting your tax-deductible payment to a charitable cause for that tax year.

8. Continue to make donations for as long as premiums are necessary to keep the policy in force, taking a tax deduction each year for the donation (as far as is allowable under the tax code current at that time).

9. When you die, the charity or cause will receive an income-tax-free payment by virtue of the policy's death benefit, which is likely to be many times greater than the sum of all of your donations for premium payments.

Tips & Warnings

• Endowment managers for charitable causes may be your best source of information regarding the proper way to set up a life insurance policy in this manner.
• With the charity as owner and beneficiary of the life insurance policy, the policy is an asset outside of your estate, and is not includable for estate tax purposes.
• The equity (cash value) in the permanent policy is available to the charity for loans.
• The death benefit of the policy may provide enough money to the charity at your death to finance a permanent research project, "chair," or source of permanent income - an endowment for the charity's cause.
• In-force life insurance policies can also be donated or gifted to a charity; the current owner has to change the owner and beneficiary titles of the contract.
• Be careful to fully investigate all portions of the IRS tax code dealing with this use of life insurance; consult with a disinterested tax adviser who is experienced in these types of arrangements.
• Don't sign any agreement documents or other binding contracts before taking such paperwork to a qualified attorney for legal opinion.
• Withhold your first donation until you have the issued policy fully explained to you by the insurance agent, and don't hesitate to ask questions about any provision in the policy that you don't understand.
• In anticipation of your declining health or ability to manage your financial affairs, make sure a trusted financial adviser or trustee continues to make donations to the charity from your estate so that timely premium payments can be made by the charity.