Charitable Giving Using Life Insurance:
A Benefit To You And The Community
This article was provided by John J. Van Waalwijk, CLU,
a registered
representative of the Northwestern Mutual Financial Network, and a volunteer
member of the SOCH Foundation’s Planned Giving
Committee
Have you thought of leaving a lasting legacy to a charity you admire, but feel uncertain that you can really do it? It is possible to provide significant support to a charity, while still benefiting you and your family. Through thoughtful planning, you can achieve your philanthropic goals and take care of your family’s needs.
The term “planned giving” is used broadly in the non-profit community to denote charitable donations that are realized through a careful process between the organization and a donor and his or her financial professionals. A planned gift is a “now and later” gift, made to a charitable organization. The present value – the now – of the gift may take the form of:
- a charitable income tax deduction
- the avoidance of capital gains taxes (on assets such as highly appreciated
stock for example)
- a secure income stream to you or other family members
The future value – the later – can come in the form of:
- reduced estate taxes
- the ability to pass on charitable dollars to help your family carry on your philanthropic legacy
A planned gift takes into consideration a variety of donor needs and situations, including tax and estate analysis, the desire to secure income from highly appreciated assets, involving family members in charitable giving decisions, and such special situations as the sale of a business.
Given the complexity of situations like these, tax consequences, and the technical nature of a planned gift vehicle, it is critical to seek the advice of a knowledgeable attorney and financial professional. Your team of professionals can help you make sure the gift is structured correctly for your needs, and the charity’s.
Charitable Remainder Trusts
A charitable remainder trust is an example of how a planned giving vehicle can benefit all parties involved: the donor, their family, and their charity.
A charitable remainder trust allows you to transfer assets into an individually structured trust that provides you and/or your beneficiaries with payments for life or a term of years. Appreciated assets that you donate to the trust can be sold without capital gains tax, so the entire sale’s proceeds can be reinvested for the trust’s benefit. So it can be highly beneficial to donate appreciated assets such as securities or real estate.
Charitable remainder trusts are appropriate for donors who want lifetime income and an immediate income tax deduction for a portion of the gift. The donor or other named beneficiary receives income for his or her lifetime and the charity receives the “remainder,” or the amount remaining when the trust terminates.
Gifting Plans Using Life Insurance
Gifting An Old Policy To A Charity
You may have a policy you no longer need. You may no longer have dependents, or have amassed adequate resources to care for your survivors. You could consider giving that old life insurance policy to your favorite charity. Under current tax laws, your federal estate may be reduced by the face amount of the proceeds. In addition, you may receive an income tax deduction for the basis of the policy and for any future premiums you continue to gift to the charity.
Gifting Insurance Policy Dividends To Charity
This technique is appropriate for someone who is just beginning a charitable plan, and who may not have assets to give. A gift can easily be established by requesting that dividends be paid in cash. The cash dividends can then be donated annually to a charity. These cash gifts are generally income tax deductible up to 50% of your adjusted gross income. With life insurance policies that are not modified endowment contracts, you can receive dividends in cash up to the basis without causing a taxable event.
Changing A Life Policy Beneficiary To A Favorite Charity
This simple technique is also easily established. The policy owner names a favorite charity as the beneficiary, for either the entire proceeds or a portion. This charitable plan allows the policy owner to retain control of the policy because the ownership is not changed. The donor’s estate will receive a full charitable estate tax deduction for the death benefit given to charity.
Buying Life Insurance To Finance A Future Donation To A Charity
One way to fund a future donation is by purchasing a life insurance policy and naming the organization as the beneficiary. The life insurance death benefit will not be in the donor’s estate since the charity was the owner from inception and the donor never held any incidents of ownership in the policy.
Charitable gifting can be a rewarding process, and is not only for the very wealthy. It is possible to address your own personal financial, tax, and estate needs, and have a philanthropic impact that may exceed your expectations.
To learn more about charitable estate planning and The Knight Society, please contact the SOCH Foundation at (609) 978-3040, or simply click here to contact us.
John J Van Waalwijk, CLU is a Financial Representative with Northwestern Mutual Financial Network, the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI, its affiliates and subsidiaries. Financial Representative is an agent of NM based in Stafford Township, NJ. Securities offered through Northwestern Mutual Investment Services, LLC, 777 Alexander Road, Princeton , NJ 08540 member NASD and SIPC. NM is not a broker dealer. To contact John J Van Waalwijk, CLU, please call 609-597-5300, e-mail him at john.van@nmfn.com, or visit www.nmfn.com/johnvan. This information is not intended as legal or tax advice.
