Eleanor Roosevelt once said, “Since you get more joy out of giving joy to others, you should put a good deal of thought into the happiness that you are able to give.” That certainly resonates with those who incorporate giving back into their lives.
Donating dollars to a favorite organization or charity has dual benefits for consumers: It sparks the joy and happiness that Eleanor Roosevelt identified and can lead to potential tax advantages realized through thoughtful financial planning. Given the economic environment, opening up the checkbook and making a donation may not be an option for some, but many Americans are looking for different ways to maintain a charitable legacy.
The life insurance industry can bring many things to the table when discussing overall portfolio management with clients. As such, the key to finding that joy in life may come in the form of insuring it.
The timeframe for consumers to have the means to support their charitable endeavors as in years past is unclear. That is why it may be appropriate to discuss gifting strategies that make sense today for leaving a legacy tomorrow.
Once needed life insurance protection may diminish over time as individual circumstances change. Rather than cash in a policy, the individual who no longer needs life insurance but has built up a cash value may gift the policy to a charity. By transferring ownership to a charity, the individual can receive a potential income tax deduction based on the amount of the policy’s cash value.
In turn, the charity would be named as the owner and beneficiary of the policy and have immediate access to the policy values and receive the tax-free death benefit. An ownership transfer can be the answer for an individual seeking an opportunity to leave a lasting legacy.
Designate Charitable Beneficiary
Typically family members are named as beneficiaries when a client buys a life insurance policy. However, the beneficiary can be any individual or organization or a combination of both. This gifting strategy places the charity of choice in the beneficiary line of the policy. After the death of the policyholder the charity would receive the tax-free death benefit and the policyholder’s estate would receive a 100% charitable estate tax deduction.
Assume, for example, an individual has estate assets of $5 million and a $1 million life insurance policy with a favorite charity named as the beneficiary. Together, the gross estate assets are $6 million. Since the life policy is going to charity, the $1 million policy is deducted from the gross estate assets, leaving a lower asset amount to be taxed and allowing more assets to be passed on to all the beneficiaries.