Besides avoiding probate because the proceeds do not pass under your will, life insurance can be a good choice for a gift to a charity on both emotional and practical levels.
On an emotional level, many people buy life insurance at a young age to prevent minor children or a surviving spouse from being without support. As time goes on, the reasons for that life insurance may diminish or fade with time. You may decide that the life insurance policy that you purchased is no longer needed for what you bought it for. If you decide that, you may decide to make a gift of that unneeded life insurance to a charity/mission about which you care.
On a practical level, a gift of life insurance can allow even people of moderate means to make a substantial gift to an organization about which they care. Second, if you name a qualified charity as the beneficiary of your life insurance policy, the death benefit will be treated as a charitable gift and, thus, you will not have to pay estate taxes on that death benefit. (Many people do not know that if you own life insurance at death, you have to pay estate taxes on that life insurance.)
You can name the charity as the beneficiary of the policy while remaining the owner of the policy. If you do this, you will be able to retain ownership and control of the policy and you will have access to the cash value of the policy. If you ever in the future want to change the beneficiary of the policy, you will be able to. Yet, by remaining the policy owner of the policy, you will have one major disadvantage: you are not able to take a charitable deduction on your income taxes for the amount of premiums that you pay for the policy.
Thus, you possibly gain the most tax benefit by both making the charity the beneficiary of the policy and by irrevocably transferring the ownership of the policy to the charitable organization. This allows you to save taxes three ways. First, you are allowed to take an immediate federal income tax charitable deduction for the lesser of the policy’s fair market value or the net premiums paid. Second, you can make contributions to the charity that will allow them to pay the premiums. You can take a charitable federal income tax deduction for these contributions. Third and finally, the amount of the death benefit will not be in your estate at the time that you die, which can reduce your estate taxes.
If you decide to either make a charity the beneficiary of your life insurance policy or to make the charity the owner of your life insurance policy, you will need to contact your life insurance company. They can get you the appropriate paperwork that will allow you to transfer the policy to the charity. If you have a very large estate and are worried about estate taxes, talk to your lawyer and, perhaps, your accountant as well to find out how a gift of life insurance may change your financial situation.
If you or your advisor have any questions about any of these devices or about the mission of Rangjung Yeshe Gomde, do not hesitate to send us an email at firstname.lastname@example.org.
Another Use of Insurance: Use a Wealth Replacement Irrevocable Life Insurance Trust to Replace Assets Given to Charity and Take Care of Your Relatives
If you are considering a major gift or have already made a major gift to Rangjung Yeshe Gomde, one of your major concerns may be that you are depriving your heirs of your property.
This does not necessarily have to happen. First, if you and your advisors have done careful planning, you have made substantial capital gain tax savings by donating appreciated property and avoiding the capital gains tax on that property. Second, by donating the property, you were allowed to take a charitable deduction on your federal income taxes. Third, if you have made a charitable remainder trust and given yourself an increased income flow from the donated assets, you will have increased the amount of your current income.
Using these substantial savings and increased income, you can purchase life insurance that can roughly replace the value of the assets that you donated to charity. You and your advisors will want to make sure that this life insurance is either owned by an irrevocable life insurance trust or by its beneficiaries to make sure that the death benefit will not be included in your estate and cause you to have to pay estate taxes.
Through making a major gift to charity and buying a wealth replacement life insurance policy, you make a win-win move. The charity wins because you will have helped the mission that you believe in. Your heirs win because they will still receive substantial assets after you have passed away.
To see a sample irrevocable life insurance trust, please click on the following link: RYG Sample Irrevocable Life Insurance Trust
Again, if you or your advisor have any questions about any of these devices or about the mission of Rangjung Yeshe Gomde, do not hesitate to send us an email at email@example.com.