Giving the Gift of Life Insurance
Charitable organizations, and those who support them, are feeling the financial squeeze resulting from shrinking levels of government funding. By default, the financial burden to support these organizations is being shifted even more to the private sector. The contributions of individual donors plays a key role in allowing non-profit organizations to maintain a consistent cash flow and carry out both day-to-day commitments and work toward longer-term goals.
The reasons for people's dedication to any given charity are highly personal, often stemming from a heartfelt concern for an organization's financial well-being and a belief that supporting a charity can make a difference. And, while the extent of financial support varies greatly, some people hesitate to contribute because they assume the amount they can afford to give might not make much of a difference. Most representatives of charitable organizations would agree that this concern is unfounded as even the most humble gift is appreciated and provides help. Expecting a modest gift to make less than a dramatic impact, however, may have some merit. This is why the gift of life insurance can be so effective.
The Perfect Gift
The gift of life insurance is a practical and affordable way to achieve
your philanthropic goals though charitable contributions. Donors
need not be wealthy to make a significant and meaningful gift. Fortunately,
there are a number of ways to accomplish this with life insurance.
Typically,
a donor applies for a permanent life insurance policy on his or her own
life and names the charity as both the owner and beneficiary of the policy. Since
the charity is the owner, the donor's annual premium qualifies as a charitable
gift and may be tax-deductible. Furthermore, no complex probate procedures will
be required to settle a life insurance claim, and the donor's estate will not
be subject to gift or estate taxes on the amount of the death benefit.
lternately, for those who want to maintain control and access to a policy's
cash value, yet have the charity receive the insurance proceeds at death,
a donor may retain ownership of the policy and simply name the charity
as beneficiary. While
this may accomplish both objectives, the downside is that the premiums do not
qualify as a tax-deductible charitable contribution since the charity does not
own the policy. The insurance proceeds will also be included in
the estate of the donor/owner, but may qualify for an estate tax charitable
deduction.
As beneficiary of a life insurance policy, a charity receives proceeds on a tax-free basis upon the donor's death. If the charity is also given ownership of the policy, it will have access to the cash value throughout the donor's lifetime. If the donor needs to discontinue contributions (i.e. premium payments) at some point, the charity may have the option of making the policy "self supporting." This may be possible if there is sufficient cash value and/or dividends to offset part or all of the out-of-pocket premium costs. Additionally, the accumulated policy values may provide a valuable financial resource to the charity, as an emergency fund or as collateral for a loan from another financial institution.
Leaving a legacy
Planning for the future welfare of a charity can be very rewarding for
you and your family and certainly for those who benefit from the services
the charity provides. Through even modest annual gifts, donors
can make a substantial and lasting impact, affect good works beyond their
own lifetime and leave a legacy that otherwise may not have been possible.
This information is intended to present the general concepts and applications, and should not be considered specific investment, tax, or legal advice. As always, we recommend consulting your personal financial advisor. To learn more about the many other potential advantages of charitable estate planning, and special donor recognition accorded through membership in The Knight Society, please contact SOCH Foundation Executive Director Chris Rollins, CFRE, at (609) 978-3081, or crollins@soch.com.
This article was prepared by Northwestern Mutual with the cooperation of John J VanWaalwijk, CLU. John J VanWaalwijk, CLU is a Financial Representative with the Northwestern Mutual Financial Network (the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin), and a volunteer member of the SOCH Foundation's Planned Giving Committee, a volunteer group of the area's leading financial professionals, guiding our educational outreach efforts. You may reach John at (609) 597-5300, or john.van@nmfn.com.
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