We all make charity donations
commonly in the form of direct contribution. You might be contacted directly
and asked to make a charity donation by a volunteer from a charity
organization; you might drop money into the charity box placed near the cash
counter of a store; you can make an online money transfer for a disaster relief
fund; you could make your neighbor’s child happy, when she drops by to your
home seeking charity donations as instructed by her school teacher; there are
numerous ways we make charitable donations.
But charitable gifting in the
form of life insurance is something different and cannot be compared with the
other forms of charity donations. You are making a large and generous gift to a
charity when gifting your life insurance to them.
When using life insurance to
donate to a charity, it is important to consider several strategies which bring
maximum benefit to the charity and yourself. The following David Barzilaiy tips
help you in gifting life insurance to make charity donations.
Name
the charity as a beneficiary
This is a very direct approach
where you obtain a life insurance policy and make the charity as the
beneficiary. You pay your premiums every year and the charity can collect the
full face value amount as the insurance money after your death.
As you know, there are tax
benefits for charitable donations. In the case of life insurance donations, the
death benefits paid to charities are not subjected to any tax and it is rest
assured that the complete amount is transferred to your chosen charity
organization in full. One thing to remember is you cannot obtain tax benefits
in the form of itemized deductions, when you pay your taxes.
In case you are not able to pay
the premium, the policy would lapse, which is a known scenario.
2 Assign
your estate as the beneficiary
This is similar to the previous
scenario where you are the owner of the policy. With this scenario your estate or
your property including all your land, building value and bank balance, becomes
the beneficiary instead of the charity. Hence, after your death, the face value
of the insurance becomes a part of your estate. In your will, you can declare
that the amount received from insurance shall go to the charity.
In this case again, the premium
is subjected to tax deduction. However, as a part of the amount inherited goes
to the organization as charity donations, that portion of money does not have
any tax obligations. Hence your next generation which inherits your estate also
obtains tax benefit, as a part of the property has gone to charity.
Transfer
your policy’s ownership to the charity
In this case, you have to sign
over the policy’s rights and deliver the document to the charity organization.
You will not be able to make changes in the policy without consulting the charity
organization. This is to create a moral obligation that henceforth you cannot
make any changes to your policy and that the insurance amount is locked to be
received by the charity. It also helps for other reasons. For instance, the
person grows old and their children are not happy with
the money going to the organization as charity donations and want to change the
beneficiary by employing a fraudulent practice. Forecasting such reasons, the
policy owner can clearly transfer the ownership to the charity right from the
beginning. In this case, the owner receives the benefit of obtaining tax
benefit for the premium that is paid.
