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Advising Your Clients on Philanthropy: Gifts of Life Insurance

by Stephen C. Lande on Categories: philanthropy

Advising Your Clients on Philanthropy:  Gifts of Life Insurance


By Stephen C. Lande, Director
The Foundation of the Greater Miami Jewish Federation

Life insurance is an important charitable gift planning tool for many charities. Insurance allows the donor to make a present rather than future gift, and a gift that is often much larger than might otherwise be possible.

Insurance gifts are generally very affordable, especially for younger donors. If the gift is irrevocable and the charity is both the owner and the beneficiary of the policy, the donor is entitled to a charitable income tax deduction for all premiums paid. Donors take comfort in knowing that their charitable legacy is in place and is removed as a consideration in their estate planning process. 
 
There was a time in the early 1990s when the IRS called into question the matter of charities having an insurable interest in the lives of their donors. The owner of any life insurance policy must have an insurable interest in the life of the insured to be entitled to purchase such a policy. In the end, the question was resolved by the individual states adopting legislation to that effect.  Florida’s statute provides in pertinent part, “… [a] charitable organization that meets the requirements of s. 501(c)(3) of the Internal Revenue Code of 1986, as amended, may own or purchase life insurance on an insured who consents to the ownership or purchase of that insurance.” F.S. 627.404(2)(b)(7). 

There are a number of ways for your client to make a charitable contribution of life insurance. They can:

  • Name a charity as the beneficiary or a partial beneficiary of a policy he/she already owns. This method is easy, inexpensive and offers flexibility, but since the donor still owns the policy, premiums are not tax deductible.
  • Apply for a new insurance policy naming the charity as the owner and beneficiary. The application process is the same as for any new insurance policy, and the charity joins in the application. Other than term life insurance, most insurance products will work just fine. 
  • Contribute a policy he/she already owns. Sometimes your clients own life insurance policies that are no longer needed for the purpose they were original purchased.  

These policies can usually be contributed to charity. The donor receives a charitable income tax deduction for what is essentially the lesser of cost basis or fair market value for paid-up policies, and the cash value of the policy with some minor adjustments for policies with an ongoing premium obligation. This would be a gift of a noncash asset, so an appraisal will be required. These are easily secured.  It should be noted that gifts of insurance policies with loans against them are problematic.

Some Additional Considerations:

Charities are pleased to work with any agent representing any quality insurance company.  Most charities are reluctant to favor any individual agent or underwriter over the others because its donors are doing business with them all.

Good insurance agents see the charitable contributions of life insurance as an opportunity for them to provide additional services and products to their clients who are philanthropically inclined.  

Although premium payments for polices owned by charities may be made directly to the insurance company and still be deductible, the donors of those policies generally prefer to contribute the premium payments to the charities and receive a tax letter from the charities. This opens up the possibility of contributing appreciated assets, as well as cash, to cover the premiums.

Human nature being what is it, donors can tire of making periodic premium payments or circumstances can otherwise change. Many charities encourage their donors to contribute policies with accelerated premium payments or that otherwise won’t require premium payments forever. 

Charities need to avoid certain types of life insurance arrangements (e.g., stranger owned life insurance) that are inappropriate and could ultimately result in IRS penalties and jeopardize their tax-exempt status.

The Foundation of the Greater Miami Jewish Federation has adopted a program designed to actively promote the use of insurance as a charitable gift planning tool.

In summary, if the donor is willing to contribute a policy that meets certain specified criteria, The Foundation will subvent a significant portion of the premium.  
For more information about gifts of life insurance at The Foundation of the Greater Miami Jewish Federation, please contact Foundation Director Steve Lande at slande@gmjf.org or 786-866-8623, or consult JewishMiami.org.  


Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as Federation’s Authorized House Counsel. Prior to joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Lande earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Pittsburgh Jewish Federation. He is also admitted to the practice of law in Pennsylvania.


South Florida Legal Guide 2014 Financial Edition

Tags: philanthropy gifts life insurance greater miami jewish federation stephen lande

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