Every year people all across the country donate millions of dollars to their favorite charities, churches and non-profit organizations. Many of these folks are not too concerned about having their names put on a plaque or other accolades. Their motives may be different from one another, such as a tax write off or just wanting to know that they are making a difference somehow. A few dollars here and there can add up for a charity, but what if you could leave a sizable amount to your favorite non-profit? What if that amount is more than you had ever considered giving away?
You can donate tens of thousands of dollars through the use of a life insurance policy by naming a charity as a beneficiary. It isn't a new concept but it is underutilized. And there are a few ways to do this.
There are some life insurance policies that have a "charitable giving" rider. It allows you to name a non-profit to receive a percentage of your death benefit. The one issue is that there may be limits in place that have to coincide with the IRS's maximum gift giving amounts. The advantage is that these riders eliminate having to create a charitable trust and usually don't cost any extra. The charity does have to be a legitimate 501(c)(3) entity in the eyes of the Internal Revenue Service.
For those who would like to donate higher amounts of money without worrying about IRS limits, the best option is to take out a policy and then donate it to the charity. By transferring ownership of the policy, the charity can control the proceeds.
For instance, let's assume you donate a policy to your church. Given that the policy will accumulate some cash value (I wouldn't suggest a term policy in this instance) the church can access that money for small emergencies, like a new refrigerator when one dies, rather than wait for someone to donate a fridge.
And since the church is the owner of the policy, they will be receiving the bill for the premium payments. As the donor, you can just write a check for the premium amount to the church and write it off your taxes.
When you do pass on to your great reward, the church, or whatever charity you choose, can receive the death benefit and use it at their discretion. I typically throw out examples like naming a Sunday school classroom after you or a scholarship fund.
Naming the charity of your choice is the simplest way of making sure a non-profit receives the death benefit from your policy. It doesn't offer with the tax advantages that come with donating your policy, but it still reduces the donor's estate by the amount of the death benefit.
If you aren't completely sure how you want to distribute your death proceeds you can name the charity as a revocable beneficiary. This gives you some flexibility in case your financial situation changes, or if you decide to no longer fund that charity. For example, a few years ago, a large non-profit was in the news because their board members were using funds to take expensive vacations. I don't think any of us would want to know that if we died we would be paying for a nice trip to the Bahamas for someone else. If that is the case, you can always change your beneficiary.
If you have a charity or non-profit that is important to you, give us a call and let us help you find a way to endow them through a life insurance policy. In the meantime, stay healthy!
Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!
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