Charitable Giving With Life Insurance

1. Business Philanthropy
Doing Well by Doing Good
Converting Potential Donors to Active Donors
Many potential donors to charitable non-profit institutions remain just that – potential
donors. The desire is there, but somewhere along the line something stops them from
making the gift. It may be that they couldn’t decide on the right property to give. They may
have felt too insecure about their financial future to make an irrevocable gift. Possibly the
myriad of tax and legal issues confused them into inaction. Gifting techniques that are easily
communicated and understood, simple to administer, and that are affordable and flexible for
the donor make it easier to convert potential donors into active donors. Utilizing life insurance
in your planning can be an effective means to this end. The following is a brief introduction
to some of the advantages of life insurance as a charitable planning tool.
Endowments - Bequests Versus Life Insurance
For those individuals who plan on leaving a portion of their estate to charity, having the
charitable or non-profit organization purchase life insurance on the life of the donor has
some advantages.
> The estate may be exposed to federal and state estate, inheritance and income taxes.
This may cause the final bequest to be lower than expected. Properly designed life
insurance proceeds will not be reduced by taxes.
> Assets left by bequest may have to go through the State’s probate process causing
delays and additional costs. Life insurance proceeds do not go through probate.
> Heirs can contest a bequest made by will. Drafting errors and family squabbles can
cause the bequest to be reduced or not received at all. Life insurance proceeds are not
subject to these issues.
> Many States afford life insurance protection from creditors, which may not be the case
for the assets the donor intended to bequeath.
> Selling assets donated by bequest may be hard to do and come with additional costs.
Life insurance proceeds are liquid and easy to obtain.
>What goes through probate is public. The existence of a life insurance policy owned by
the charity or non-profit is confidential.
This presentation is not intended as legal, tax or accounting advice. All planning and design alternatives should be discussed with your legal, tax and accounting advisors/professionals.

2. Leveraging a Charitable Gift with Life Insurance
Often times a potential donor’s desire to make a charitable gift exceeds their financial
capacity to do so. They feel good about what can be accomplished with the funds and have
a strong relationship with the charitable organization, but they feel that making a substantial
irrevocable gift at this time is beyond their means. Using life insurance as a charitable
giving tool may be the answer. There are a number of ways in which life insurance can
create substantial charitable gifts with minimal outlay by the donor:
Gift of an existing paid-up life insurance contract
At one point in their life it was prudent to purchase a life insurance policy to protect the
financial interests of their family. If the need for that policy is no longer there it may be
donated to charity. At the death of the insured the insurance proceeds will be made
payable to the charity. There are also tax advantages that may be realized which can
actually make the transaction positive from a cash flow standpoint.
Gift of premiums
There are a number of advantages that a charitable organization receives from purchasing life
insurance on a donor’s life. If making a substantial gift today is beyond a potential donor’s
financial means, making smaller annual donations that the charitable organization can use
to pay insurance premiums is a good way to leverage their gifts into a much larger contribution.
Naming a charity as beneficiary
If the idea of leveraging smaller annual contributions into a larger substantial gift is of
interest to the donor but they would like to retain ownership of the policy - purchasing a
life insurance policy may be an appropriate solution. The donor owns the policy, makes
annual premium payments, and names a charity as the beneficiary. Cash value life insurance
policies are often used as tax-advantaged accumulation vehicles for those looking to create
supplemental retirement income for themselves. The donor can utilize a cash value policy
to create retirement income and name a charity as beneficiary thus generating a substantial
gift upon their death.
This presentation is not intended as legal, tax or accounting advice. All planning and design alternatives should be discussed with your legal, tax and accounting advisors/professionals.