global Tax Life Insurance: Think Outside of the (Gift) Box for Charities May 04, 2017 Do you have a whole life insurance policy that’s no longer needed? Perhaps your kids have become financially independent, and you have enough assets to meet your needs. Consider donating your policy! Are you planning to give to charity? If so, life insurance can be a versatile tool for accomplishing your philanthropic goals. Here are some out-of-the-box ideas that may be worthwhile if you have a whole life insurance policy that’s no longer needed. Have You Outgrown Your Policy? Over time, some people discover that they no longer need whole life coverage. Usually, the situation occurs when children have become financially independent and other personal assets are more than sufficient to meet the family’s needs; so, the insurance policy’s original purpose no longer applies. You could surrender the policy in exchange for its cash value, but doing so may result in a taxable gain. If you plan to make charitable gifts anyway, donating the policy may be a better choice. What Are Your Options? There are two ways to donate life insurance: 1) irrevocably transfer ownership of the policy to a charity, or 2) keep the policy and designate a charity as your beneficiary. From a tax perspective, the first option is preferable because it generates an immediate income tax deduction (subject to applicable limits) generally equal to the lesser of: The policy’s fair market value, or Your tax basis (which equals premiums paid less dividends and withdrawals received). Additional deductions may be available if you continue to pay the premiums. Naming a charity as beneficiary is less advantageous from a tax standpoint, but it offers greater flexibility. You won’t enjoy an immediate income tax deduction. But as owner of the policy you’ll retain the rights to 1) tap the policy’s cash value during your life, and 2) change beneficiaries in the event your financial circumstances or feelings about the charity change. Eventually, your estate will be able to claim a charitable deduction when you die, if a charity is still the policy’s beneficiary. There are many other ways life insurance can be used to help charities while providing you with tax and other financial benefits. For example, you could: Exchange your policy for a charitable gift annuity, Donate a portion of a policy’s death benefit to charity, Assign policy dividends or interest to a charity, and Add a “charitable giving rider,” which pays an additional 1% to 2% of a policy’s face value to a qualified charity. Who Can Help? To explore the full range of charitable-giving options, talk to a member of our private client services team. We can help you devise a gifting plan that suits your charitable goals and personal financial needs.