Federal Estate Tax

Life insurance proceeds are subject to the federal estate tax if the insured held incidents of ownership at the time of his or her death, or within three years before death. If the policy is transferred to a qualified charitable organization more than three years before death, the proceeds will usually not be includible in the gross estate of the insured. Even if the proceeds are includible in the estate of the insured because he or she retained some incident of ownership, a full estate tax charitable deduction will be allowable.

Designating Charity as Beneficiary

If a donor does not desire to make an immediate gift of an existing policy, the donor may retain ownership and control of the policy but name a charity as beneficiary.  This will not produce any income tax charitable deduction, but it will result in an estate tax charitable deduction for the death proceeds passing to the charity at the insured donor's death.

Federal Gift Tax

If a donor transfers his entire interest in a policy or other asset to charity, a gift tax return does not have to be filed, regardless of the amount of the gift.

The full value of a policy given to charity qualifies for a gift tax charitable deduction.

Advantages of Life Insurance Gifts:

• A gift of life insurance may enable a donor to make a substantial gift to charity cost-effectively.
• A gift of life insurance may allow retention of other assets by the donor's family.
• Payment of the life insurance proceeds to charity are made without the delays of probate.
• A gift of life insurance can be made without public record if the donor so chooses.
• Premiums are usually deductible for income tax purposes if the charity is the complete owner of the policy.
• The gift of a life insurance policy is usually fully deductible for federal gift and estate tax purposes.

A life insurance policy is often used in conjunction with a charitable remainder trust. This type of trust can provide current income tax benefits to the donor, an income to the donor's survivor, and a generous deferred gift to the charity.

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