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Life Insurance's
Role in Estate Planning
Most people
know that life insurance can be a key part of their overall financial
game plan. They may not realize it can also be an important component
of charitable giving and estate planning.
Direct Giving
A life insurance policy with cash surrender value that's no longer needed
for its original purpose (such as financial security for a spouse who
has since died, or education of children who are now grown) can become
a tax-wise way of supporting Queen of the Valley. If the policy is already
paid up, it can be signed over to the Foundation. The donor can claim
the full cash surrender value of the policy as a charitable tax deduction.
What if the policy isn't paid up? One solution is to sign the policy
over to the Foundation and keep it in force. The donor receives a tax
deduction equivalent to the cash surrender value plus a tax deduction
each year for the annual premium payments (see sidebar this page).
Another way to give through life insurance is by taking out a new policy
with the Foundation as beneficiary. The donor pays for the premiums,
which are tax deductible, and can in this way make a very large gift
"on the installment plan."
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Wealth
Replacement
Life insurance can also help donors who want to take advantage of charitable
trusts without shortchanging their children or other heirs. For example:
Joan and Bert are a 73-year-old married couple with a rental unit they
bought years ago for $100,000. It's now worth $500,000. They transfer
the property to a charitable unitrust benefiting the Foundation, thereby
avoiding the capital gains tax they would have paid if they sold the
property and gaining a large tax deduction for their gift. In addition,
the trust pays them an annual income greater than they received from
the property.
However, there's one drawback: when Joan and Bert die, the remainder
in the trust will go to the Foundation, not to their heirs.
The solution is a survivorship life insurance policy that will pay Joan
and Bert's heirs $500,000 after they both pass away. The couple can
use the gains from their tax deduction and their increased income to
cover the cost of the insurance policy premiums. This can be a great
way to enjoy all the satisfaction and tax benefits of giving to charity
and still take care of the family you leave behind.
As always, the financial details will vary from person to person. But
if you'd like to learn more, Richard Green, the Foundation's chief development
officer, can help. For a confidential, no-obligation consultation, call
him at 257-4044.
