When you first bought a life insurance policy, you probably hoped to ensure the financial stability of your family should something happen to you or your spouse. Have your circumstances changed since then?
Life insurance can be a tool for many purposes. For example, it can provide liquidity for paying taxes and other expenses at death. But, believe it or not, some of the most satisfying uses for life insurance policies are connected with charitable giving!
If you have a life insurance policy you no longer need, you might contribute it to a charitable cause in which you believe. Purchasing a new policy and naming the Sedalia School District Foundation as a beneficiary is another possibility.
Perhaps you are considering a sizable bequest to the Sedalia School District Foundation, provided your family's future inheritance is not affected. Life insurance can play a part in meeting this goal, too, by replacing for your heirs the amount donated.
This versatility of life insurance makes revisiting its uses a good idea.
Indirect Use of Insurance for Wealth Replacement
In recent years, probably the greatest increase in using life insurance in philanthropic plans has been to replace for heirs of an estate value being given, by one means or another, to a charitable organization like the Sedalia School District Foundation.
A significant outright charitable gift might reduce the projected value of inheritance for family members. However, depending on the age, health and marginal income tax rate of the donor(s), income tax savings from use of the charitable deduction can be enough to purchase life insurance, whose death benefits equal the value of the gift.
Gift of an Existing Policy
You may own an insurance policy that has a substantial cash surrender value, yet the original purpose for the protection no longer applies. The policy might have been purchased initially to provide financial security for a spouse now deceased, to educate children now grown or for liquidity to pay death taxes when liquid assets were in short supply. This policy can be a hidden asset, available to be used for your philanthropic purposes.
If you choose to name the Sedalia School District Foundation as the beneficiary of a policy that is not paid up and also assign all incidents of ownership of the policy, several good things happen. You receive an immediate income tax charitable deduction for the lesser of the premiums you have paid or the "interpolated terminal reserve" value for the policy. This is similar to the cash surrender value, a figure available for the insurer.
http://sedaliasdf.org/components/com_jce/editor/tiny_mce/plugins/anchor/img/anchor.gif);"> If you itemize deductions on your tax return, your actual income tax savings depends upon marginal tax rate. A person who does not normally itemize may find the additional charitable deduction boosts his or her total itemized deductions above the standard deduction.
For a paid-up policy, the deduction is the cost of replacing the coverage with a comparable policy. In either situation, the tax deduction cannot be greater than your net investment in the policy (total premiums paid less any dividends received).
When death benefits under the policy are removed from a taxable estate, there may be a future estate tax savings if your estate would have otherwise been subject to tax.
If premiums on the policy are still payable, there are two options to be considered. You may stipulate that the assignment of ownership of the policy at its current value is the total charitable gift, immediately available for our use. In that case, we might surrender the policy for cash. Or we might decide to accept an amount of paid-up insurance. In either case, you are relieved of the obligation to make further premium payments.
However, an alternative may be more attractive. The policy can remain in force so that the larger, original face amount will become your gift. You pledge to make unrestricted gifts at least annually, which we will use to pay the premiums. The gifts are deductible, and the policy is thereby kept in force with pretax instead of after-tax dollars for a lower actual cost.
Use of Beneficiary Clause as a Revocable Gift Arrangement
Other options are available if you would rather retain ownership of a policy as an asset for your own financial security or that of others. They include:
- naming the Sedalia School District Foundation as the only or a partial primary beneficiary of the policy, with you retaining the right to change the beneficiary clause as owner of the policy;
- naming the Foundation as the contingent beneficiary, receiving the death benefits only if a named individual beneficiary predeceases you;
These plans do not produce a current income tax charitable deduction, but they can provide the satisfaction of knowing we will receive some benefits if certain events take place and the arrangement is left unchanged. Any amounts payable to the Foundation at your death will not be subject federal estate tax.
New Policy for Future Charitable Gifts
Many of our friends and regular donors who would like to make a significant future gift to the Sedalia School District Foundation at a relatively low cost can do so through a new life insurance policy. With increasing longevity, older persons can now purchase insurance at more affordable premium costs than were possible in the past. Retired individuals enjoying a surprisingly high standard of living can use some annual discretionary income to perpetuate their support of our work without depleting their financial reserves or reducing the projected inheritances of family members.