Legacy and Charitable Giving Through the Use of Life Insurance

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By Paul Rovinsky, former Director of The Jewish Federation in the Heart of New Jersey’s Jewish Community Foundation (JCF)
 
We all think about the future. Many in the Jewish community express concern about passing their values onto their children and future generations.  The Jewish Federation joined with the Harold Grinspoon Foundation’s LIFE & LEGACY program to address these concerns about the future of our Jewish heritage.
 
Careful legacy planning is a way for forward-thinking families and individuals to improve the Jewish future as well as their current financial situation – all while expressing their philanthropic interests and personal passions.
 
In thinking how best to plan a legacy gift, there are several approaches: 
  

Designation in a will, estate plan or retirement account

Trust assignments

Gift of assets (cash, stock or annuities)

Life Insurance

 
Life Insurance is an important charitable gift planning tool as it can be used to make a present gift as well as a future one, often much larger than otherwise possible. Through the payment of premium on a life insurance policy, which can be a present deduction on one’s tax return, this type of gift becomes quite affordable, especially for young donors. The designation in the policy is that the gift is irrevocable and the charity is both the owner and beneficiary of the policy. This allows the donor to take a charitable tax deduction for all premiums paid. 
 
“This is a great way to take comfort knowing that your charitable legacy is in place, and predetermined in your estate planning process, according to Keith Zimmerman, Federation board member and insurance professional. Zimmerman shares that “Life insurance can be a powerful tool to make a large legacy donation to a charity for a relatively small annual premium. My wife and I utilized this technique for an endowment to the Jewish Federation and another to our synagogue. Since the charities own the policies, our premiums are income tax deductible every year.  This enabled us to give a significant endowment for a very modest sum.”  
 
Legacy givers can also take comfort knowing the governmental regulations permit this. Under IRS statutes, a charitable organization which meets the requirements of Section 501(c)(3) of the Internal Revenue Code, as amended, may own or purchase life insurance on an insured who consents to the ownership or purchase of that insurance.
 
There are various ways to accomplish making a charitable contribution of life insurance:
 
  • Name a charity as the beneficiary or partial beneficiary of a policy a person already owns. The insurance company will provide a form which is easy to complete.  No other change needs to be made, however, as the donor remains the owner of the policy, the premiums are not tax deductible.
  • The donor applies for a new insurance policy naming the charity as the owner and beneficiary. The process is the same as any other life insurance application, and the charity signs onto the application. All products work fine, however, term insurance has a limited time frame, thus other forms of policies work better.
  • Transfer a policy already owned to the charity. This saves the policy which otherwise may no longer be needed.  The charity is named as owner and beneficiary. The donor receives a charitable income tax deduction for what is essentially the lesser of the cost basis or fair market value for paid-up policies. The cash value of the policy may be sufficient to maintain the policy without further premium payments. The life insurance company will provide an appraisal on the worth of this policy, and help determine what additional premiums, if any, are needed. 
 
Mark D. Lowe, Federation supporter and CFP, CLU, ChFC, explains that “Life insurance can be used effectively as a tax free, wealth replacement vehicle for your family while donating appreciated property or taxable IRS assets (such as heavily taxed IRA and 401(K) plans) to charity – it’s a great combination.” Lowe cautions, however, that gifts of insurance policies with outstanding loans can be problematic. “Always consult with your financial advisor before making such a gift.”
 
Non-profits, such as the Jewish Federation in the Heart of New Jersey, will be pleased to work with an individual’s or family’s legal, financial, estate planning, or insurance professionals. The Federation encourages those interested in exploring legacy giving as part of their philanthropic and estate planning goals to speak with this type of professional.  
 
Elise Feldman, Federation board member and Certified Pension Consultant, notes that “these forms of endowment give you options to accomplish your current and future goals. Life Insurance is an easy method to employ, and one you can explain to your family.”
 
The Jewish Federation has been working with donors for many decades to help them realize their philanthropic aims. For more information about legacy gifts, and the use of life insurance to make a legacy gift, please contact Susan Antman, Executive Vice President, The Jewish Federation in the Heart of New Jersey, at susana@jewishheartnj.org, or 732-588-1800.  
 
Disclaimer:  These descriptions and testimonials are for information purposes only and do not constitute tax or legal advice.  Please consult with your legal, financial, insurance, or estate planning professionals to understand the implications of a gift for your particular circumstances and goals.