When it comes to making donations to our favorite charities, you may think of writing a check to that charity every year. This allows you to not only help that charity today but to also potentially claim some type of benefit on your taxes.
But what if, by forgoing those direct donations today, you could make a much larger financial impact on that charity down the road? Life insurance has some unique features that can help you take the donations that you make today and leverage them into a much larger gift in the future. There are several ways that you can utilize life insurance in your charitable giving strategy:
- Charity as a Beneficiary: The simplest way would be to name that charity as a beneficiary of your existing life insurance policy. You could even name that charity as a partial beneficiary of the policy. For example, your spouse could receive 90% and the charity could receive 10%. Please note that a term insurance policy or a group plan through work may only be in force for a certain number of years. Looking at permanent insurance, such as whole life or universal life, will ensure that the charity will receive the payout.
- Gifting an Existing Policy: If you have a permanent life insurance policy that is not needed for your family, you can gift that policy to a charity, making it the owner and the beneficiary of the policy. They would be responsible for paying the premiums to keep it in force and would collect the death benefit at your passing. If the policy had cash value, the charity could also consider taking out a loan or surrendering the policy for its cash surrender value. Another option would be for the charity to sell the policy to a life settlement company.
- Establishing a New Policy: If you don’t have existing permanent life insurance, or your existing policies are needed to provide for your family’s estate plan, you could consider taking out a new policy and naming the charity the owner and beneficiary. Once the policy is established, you could donate the amount of the premium to the charity, and they would use your donation to pay the annual premium. A 65-year-old couple in good health could take out a survivorship, or second to die, policy. The annual premium for a $1 million death benefit would be under $20,000. While they are alive, the couple would make the $20,000 donation to the charity every year and may receive a tax benefit for doing so. At the death of the second spouse, the charity would receive a $1 million benefit from the insurance company. This strategy allows you to leverage your gifts today to ensure a larger benefit tomorrow.
As you can see, gifting strategies using life insurance can offer both you and the charity some unique benefits. While we often think that the donation that we make today will go to help that charity right away, some of the strategies mentioned above could have a much more profound impact on the charity down the road. If you are interested in learning more about some of these options, please reach out to your Apella Financial Advisor today.
Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.
Apella Wealth does not sell commission-based insurance products. The firm does work with clients through the financial planning process to identify potential gaps in insurance coverage and may facilitate placement of insurance at client direction.
