According to the National Philanthropic Trust, Americans gave 557.16 billion in charitable offerings last year. Distributing charitable gifts to religious, service organizations and educational organizations is common among many, but how does life insurance come into play? There are a variety of ways life insurance policies coincide with charitable giving opportunities. Let’s walk through a few ways charitable gifts can be a part of your estate plan through life insurance and methods to execute this.
How Life Insurance Can Enhance Charitable Giving and Your Estate Plan
A charity can receive life insurance policies as gifts, can be named a beneficiary and even can be allotted a percentage of a death benefit through life insurance riders. Here are a few ways life insurance policies can have an impact on charitable organizations and their donors.
Reduces Estate Tax
Electing to gift a life insurance policy to a charitable organization is one way to support philanthropic organizations. In this scenario, the organization would receive the face amount of the policy upon the donor’s death. This allows the donor to reduce their taxable estate, benefitting the organization and the donor.
Allows Larger Contributions
Naming an organization as a beneficiary of a life insurance policy could create a generous gifting opportunity. A death benefit could have a significant impact on a charity that you truly value by gifting a large amount through a life insurance policy. While you may only be able to gift so much while you are living, a life insurance payout can maximize your offering significantly.
Creates Tax Deductions
In some cases, if you elect to pay premiums for a life insurance policy gifted to an organization, a donor could deduct those payments from their taxes. For more tips on when and how life insurance is tax deductible, review this article: Is Life Insurance Tax Deductible?
Aids in Legacy Building
While passing assets down to family members or loved ones can be meaningful, offering support to an organization can further amplify your legacy. Choosing to give to a charity helps demonstrate your values and solidifies your legacy after you are gone. Life insurance can help expand these benefits for a chosen organization, offering tremendous value beyond dollars and cents.
Ways to Give to a Charitable Organization with Life Insurance
Rider: Some life insurance policies offer a charitable giving rider option that enables a percentage of a death benefit to be paid to the designated organization. While there are more restrictions and limits in place for this option, it still provides an effective donation option.
Donate the Policy: Donating or gifting a policy to an organization provides an even greater benefit to an organization and a donor. By choosing this option, donor can lower their taxable estate and ensure larger payouts to their chosen entities.
Name as a Beneficiary: Lastly, naming an organization as a beneficiary is one of the simplest ways to support a charity after your death. There are fewer tax advantages, but still does reduce a taxable estate and provides significant support to the charity.
Talk to a Financial Advisor
If giving to a charitable or philanthropic organization is a priority for you in your estate plan, consider discussing this goal with your trusted financial advisor. An advisor can ensure you know all of your options and factors to consider when putting this plan in place. They will also be able to discuss, in more detail, the pros and cons of each method of giving through life insurance.
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