Use of Life Insurance In Planned Giving

March 13, 2015

By Ray Croff, CLU, ChFC, CAP, RFC
Chartered Advisor in Philanthropy

When using life insurance as a tool for charitable intentions, we must establish an insurable interest. This means there must be a relationship history between the charity and the donor. A history of annual giving will work. You need to have this insurable interest if the charity is going to be the owner. It is not necessary to establish an insurable interest if the charity is listed as a beneficiary on your policy.

If the charity is the owner of the policy, the donor would then make gifts to the charity to make the premium payments. These cash gifts made to the charity are tax deductible but the most obvious advantage of this use of life insurance is that it amplifies the donor’s gifting. The donor will have donated more in terms of dollars and thus make much more of an impact than a series of annual gifts.

Gifts to charity are limited to 30% of adjusted gross, however if the charity is public, the gifts are eligible up to 50% of agi.

When gifting, the beneficiaries of a life insurance policy do not have to be limited to one charity. An effective way to donate to more than one charity through a planned gift is to use a local community foundation. In this case, the local community foundation would apply for and own the life insurance on the donor. The donor would advise the foundation on which charities to make gifts to on the donor’s death.

Compound interest is good, compound taxation is bad.
Ray Croff CLU ChFC RFC CAP
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