Life insurance can be an attractive option in estate planning.
Life insurance can be an attractive way for friends of Sisters of Notre Dame de Namur to make a charitable gift because it is a flexible, cost-effective and often tax-advantaged option. Life insurance can ...
- Fund a gift commitment: If you have a life insurance policy you no longer need, you might contribute the ownership of it to Sisters of Notre Dame de Namur. Purchasing a new policy and naming the Sisters as beneficiary is another consideration.
- Be used for asset replacement: You can make a gift of an asset (such as appreciated securities) to the Sisters and replace the value of that asset to benefit your heirs with a life insurance policy.
- Eliminate estate taxes: The purchase of life insurance through an irrevocable trust can eliminate the estate tax burden on the benefit amount for the decedent.
There are three ways to make a gift of life insurance, and each approach has its unique advantages. As always, consult your financial advisor to discuss your best course of action.
Strategy #1: Irrevocable gift of life insurance
There are two ways to make an irrevocable gift of life insurance for the benefit of Sisters of Notre Dame de Namur.
1. Gifting an existing, fully paid policy: If complete ownership is transferred to the Sisters, and “Sisters of Notre Dame de Namur” is the named beneficiary, the gift will generate an immediate charitable income tax deduction.
2. Gifting a new policy: You may take out a new policy and irrevocably name “Sisters of Notre Dame de Namur” as the owner and beneficiary of the insurance contract while you pay the premiums. Whether you make one single payment for the policy or pay premiums annually, each payment produces a charitable income tax deduction.
Strategy #2: Naming the Sisters as a beneficiary
If you want to retain maximum flexibility, “Sisters of Notre Dame de Namur” can be named as either primary or contingent beneficiary of the policy. This strategy affords you a full estate tax charitable deduction when you die and the benefit is paid to the Sisters.
Strategy #3: Asset replacement
Perhaps you’re interested in making a substantial charitable gift but the thought of depriving family members of inheritance is a concern. An asset replacement strategy might be the answer. It can allow you the personal satisfaction of fulfilling your philanthropic objectives and protect the income tax and/or estate tax savings of a charitable gift or bequest.
It might be more advantageous to donate a highly appreciated asset, such as property or stock, to Sisters of Notre Dame de Namur because you will usually be able to take a charitable deduction for the fair market or appraised value of the asset. Once the asset is in the hands of the Sisters, there will be no capital gains tax on the subsequent sale. You, in effect, get a double benefit — a substantial deduction and elimination of the capital gains tax. The Sisters receive its benefit immediately.
Then, you can purchase a life insurance policy that provides your heirs with a cash payment at your death, replacing the assets given to the Sisters. For example, if you named “Sisters of Notre Dame de Namur” as the beneficiary of your IRA upon death, life insurance can be used to replace the value of your IRA that might have gone to other heirs and your IRA passes to the Sisters tax free. Additionally, if your life insurance policy is purchased and held by an irrevocable life insurance trust, the insurance proceeds can pass to your heirs free of estate taxes.
Conclusion
A gift of life insurance provides great flexibility to meet charitable giving goals. We would be happy to provide information on the ways in which this strategy can help you achieve your objectives and at the same time support Sisters of Notre Dame de Namur. Contact Kevin Manley, director of development, to discuss your ideas.