Tuesday, April 26, 2011

Charitable Contributions with Life Insurance

Life insurance is great way to leverage a small cash donation to have a large benefit for your favorite charity, non-profit or church organization. Donating life insurance proceeds can be as easy as simply naming your favorite charity as the beneficiary of a policy. A policy holder could go one step further and irrevocably give the policy to the organization by naming the charity as the policy owner. If you donate a permanent cash value life insurance policy, the charity could enjoy the policy’s accrued cash value at its own choosing. Also, if the charitable organization owns the life insurance policy, premiums may also be tax deductible. Please see IRS code below:

Charitable deduction for individual life insurance premiums

  1. While personal life insurance premiums are not deductible as such, a charitable deduction may be available for premiums paid on a policy owned by a charity [IRC §170].
    1. A charitable organization or trustee of an irrevocable charitable trust must own the policy.
    2. The deduction is subject to the limits on deductions for gifts to charities:
      1. Cash payments “to charity” in the amount of the premiums will qualify for a current deduction of up to 50% of the donor’s adjusted gross income, with a five-year carryover [IRC §170(b)(1)(A)].
      2. The deduction for premiums paid directly to the insurer “for the use of charity” may be limited to 30% of the donor’s adjusted gross income, with a five-year carryover [IRC §170(b)(1)(B)].

For more information on donating to charitable causes via life insurance and charitable remainder trusts, please Contact Us for a free consultation.