127 / Are gifts of life insurance to charitable organizations subject to gift tax?
Generally, no. An individual may take a gift tax deduction for the full value of gifts to qualified charities of life insurance and annuity contracts, and of premiums or consideration paid for such contracts owned by qualified charities.1 Such a deduction is not allowed where an insured assigns (even irrevocably) to a charity the cash surrender value of a life insurance policy (either paid-up or premium paying), including a right to death proceeds equal to the cash surrender value immediately before death, if the donor retains the right to name or change the beneficiary of proceeds in excess of the cash surrender value and to assign the balance of the policy subject to the charity’s right to the cash surrender value. According to the IRS, such a gift is neither one of the donor’s entire interest in the property nor one of an undivided portion of the donor’s entire interest in the property ( Q 121), and so the deduction is disallowed under IRC Section 2522(c).2
If the law in the state of the donor’s domicile does not recognize that a charity has an insurable interest in the life of the donor, a charitable deduction may not be allowed for a gift of a newly issued insurance policy (or premiums paid on the policy) or for gifts of premium payments on a policy applied for and issued to the charity as owner and beneficiary.3
1. IRC § 2522.
2. Rev. Rul. 76-200, 76-1 CB 308.