Posted by ABLE Tax Resolution

The Best Information On How to Combine Your Charitable Giving And Life Insurance

The Best Information On How to Combine Your Charitable Giving And Life Insurance

It is imperative to have a sound financial plan, to be able to keep tab of your financial goals. Financial planning is not a product-centric process, often financial products such as mutual funds, life insurance, annuities to achieve the goals with efficiency and less effort.

Note that not all products are fit to be permanent fixtures in your portfolio. Our goals changes due to our financial status evolution, likewise the ongoing need for some certain products or strategies could also change too.

One of the essential products for protecting wealth in a household is life insurance. As you get older, the need for life insurance increase or sometimes decrease. Perhaps you have a life insurance policy you no longer need, the best option is to give away the policy to a charity if you feel philanthropic. 

Life Insurance policies can be given away as a gift or used for a charitable purpose.

Two Best Ways to combine Your Charitable Giving and Life Insurance

1. Giving Away Your Existing Policy 

The first thing to do is to give away your existing insurance policy; this strategy is always open when your policy has outlived its primary objective. Peradventure you no longer have a use for your estate taxes. You can give away the policy to any of your favorite charity.

The ownership of the policy can be changed when you are sure you want to give away a policy.  You can apply for a charitable income tax deduction for the value of the policy you are giving out to charity.  Should in case the policy requires ongoing premium, thats the responsibility of the charity, but you can help them to reduce their troubles, through these three ways:

i. You can decide to pay the value of the premiums to the charity, which in turn pays the insurance company. The premiums would then be income tax deductible because the policy now belongs to the charity.

ii. If the policy is not yet paid up, you continue to pay for the policy premium policy on behalf of the charity, through paying the insurance company.

iii. You can also choose to convert the policy to a reduced and paid-up policy before you donate it with no ongoing premiums required. With this method, you need not to worry about excess cash flow after you've given the policy as a gift to charity.

Note; most charities prefer gifts of policies with no ongoing premiums because it saves them a lot of stress of sending the donor a receipt each time a premium payment is made.

When a policy that is valued more than $5,000 as at the time the policy is given out, the donor will need a Qualified Appraisal of the gift. A disinterested third party must be the one to issue the Appraisal.

2. You can Choose to Give a New Life Insurance Policy

 The second option is to choose to give a new life insurance policy. This can be tough because the charity will need to have an insurable interest in the donor before it can claim ownership of the policy. The requirement can get more comfortable if you've already created a bond with the charity before that time. You can then choose to make ongoing premium payments subsequently or make full payments on the current premium.

You want more control over the policy; your best shot is to name the charity as the sole beneficiary of the policy. You can do that by:

i. You can use a life insurance trust to hold the policy and also list the charity as a beneficiary of the trust. This has proven to be very helpful especially when you are splitting death benefits between multiple parties.

ii. You can choose to name the charity as a partial or full-time benefit beneficiary. For example, you can choose to leave half of the policy deaths benefits of your children or wife, and leave the rest to charity. 

Always review your financial plan to check if you need the policy, before deciding on making any changes to your insurance policy. The best thing you can do is to make sure you keep your current policy intact.  Because in most cases, looking at the secondary market or surrendering the policy can be the only options you have.

It is vital to take your time in going through your financial planning, to ascertain if your goals and needs fit into your budget. By doing this you won’t have to keep a life insurance policy you have no use for, and you can also avoid giving out the one you need.

ABLE Tax Resolution
Contact This Member