Most of us think of life insurance as an asset for our heirs, which it can be on a very efficient basis. However, it is increasingly being used as a tool in the planning of charitable gifts.
This trend is based, in part, on improved forms of life insurance that work well in conjunction with philanthropic options. The use of life insurance, with charitable organizations the recipients of death benefits, has been practiced for many years.
Practical advantages include prompt, confidential transfers outside of the probate process, and the relatively simple, cost-free procedures for naming us as a beneficiary or assigning ownership of a policy to Kappa Alpha Order Educational Foundation.
Gift of an Existing Insurance Policy
The owner of a life insurance policy with cash surrender value may find that the original purpose for the protection no longer applies. It may have been purchased to provide financial security for a spouse now deceased, to educate children now grown and self-sufficient or to furnish liquidity for estate taxes since reduced or otherwise avoided.
In such instances, one option simply is to name Kappa Alpha Order Educational Foundation as the primary beneficiary under the contract. This is a revocable arrangement for a future gift, not deductible for income tax purposes.
As an alternative, the cash value can be a hidden asset, readily available to make a current charitable gift. When you name us as the beneficiary of a policy under which you are insured, and also assign all incidents of ownership of the policy to us, the following good things happen:
an income tax charitable deduction, available under most circumstances;
tax savings from use of the deduction, which can be invested for future income;
removal of death benefits from a taxable estate, reducing the future estate tax liability.
When KAOEF keeps the policy, then you make annual tax-deductible gifts to us that will cover the continuing premium cost. Although this delays us realizing your gift, the future benefits can far exceed the current surrender value. Since the subsequent gifts are deductible, you are using pretax instead of after-tax dollars. Also, it is possible to use appreciated stock that otherwise is to be sold to fund your premiums, adding avoidance of the capital gains tax.
Using a New Insurance Policy
Entering into a new life insurance contract, rather than using an existing policy, is another way of making a future gift for us work. Gifts to us to cover the initial and subsequent premiums are tax deductible, which, for those who itemize, reduces the net cost by the amount of income tax savings. This method can be especially attractive to younger donors.
A Satisfying Gift
If you are unable to let go of other assets, contributing life insurance is a perfect and easy solution. Your greatest reward is the personal satisfaction of helping KAOEF with a larger gift than you thought possible. But you also may increase your cash flow and secure important tax savings. For more information, please contact Erik Showalter at 540-460-1401 or 540-463-1865 or eshowalter@ka-order.org.
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The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.
