Freedom Farm Post 58


Charitable Planning with Life Insurance
Using Life Insurance in Charitable Planning*

*This content is for Information purposes, No endorsement intended* 

Planning Concerns
You are a high-net-worth individual with an established pattern of
support and involvement with specific charities. As such, you are
looking for a way to provide the greatest benefit to your favorite
Life insurance can help you make a gift to charity or replace a
charitable gift made for the benefit of your family.
How It Works
You can transfer an asset directly to a charitable organization during
your lifetime or at death, and at the same time, reduce your taxable
estate. You can also make an indirect gift by using a charitable trust
or charitable life estate that provides benefits to both you and the
charity. Moreover, assets you transfer to charity can be replaced at
a discount for your family through the use of life insurance. What’s
more, the savings from a charitable income tax deduction can even
be used to fund a much needed life insurance policy.
Ways to Use Life Insurance in Charitable Giving
Your specific planning objectives will dictate how life insurance
may work for you, but here are some ways that life insurance can
be used in charitable giving:
Donating an Existing Life Insurance Policy to Charity.
A gift of a life insurance policy on your life (or the joint lives
of you and your spouse) can benefit a charity significantly,
though the benefit is delayed until death. If there are ongoing
premiums due on the policy, the charity must pay them to keep
the policy from lapsing. And when a gift of an existing policy
and all its rights are transferred to the charity, a charitable
income tax deduction may be available.1
Naming a Charity As Policy Beneficiary
. A charity can be
named as beneficiary of a new or existing life insurance policy.
No current charitable income tax deduction is allowed since
you will still have full ownership rights, primarily the right to
change the beneficiary designation. However, a charitable estate
tax deduction is available for the full value of the proceeds
transferring to charity at death. The appropriate amount of
death benefit in this scenario must reflect the risk of loss to the
charity (insurable loss) upon the your passing, measured by prior
gifts, services or other support provided to the charity.
Charity-Owned Life Insurance.2 You can also make cash gifts
equivalent to the premium amount on a new life insurance policy
on your life, owned by a charity. Like any cash gift, an income
tax deduction is available for the amount of the cash given
directly to charity.
Similar to naming a charity as a beneficiary
(above), there must be a measurable insurable loss to the charity
when naming the charity the owner and beneficiary of a policy.
When making charitable gifts, you and the charity may benefit in
a number of different ways. Talk to your financial professional to
learn more.
The charity receives a gift it can count on to further its cause.
In most cases, the charity benefits from the full value of the asset
transferred since transfer taxes may not apply.
You may benefit from the savings associated with a charitable
income tax deduction.
You may be able to avoid a lump-sum capital gains tax on a
highly appreciated asset.
You may achieve significant gift tax savings and reduce estate taxes.
You may be able to retain an income stream from the transferred
asset for life or for a period of years.

This piece is for Information/marketing purposes. The amount of life insurance coverage that you may qualify for would be subject to medical and financial underwriting requirements and may
be more (or less) than applied for.
This material does not constitute tax, legal or accounting advice, and neither Post 58 nor any of its agents, employees or registered representatives are in the business
of offering such advice. It cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the information/marketing of the transactions or topics it
addresses. Comments on taxation are based on understanding of current tax law, which is subject to change. Anyone interested in these transactions or topics
should seek advice based on his or her particular circumstances from independent professional advisors.
1. Please see your financial professional for the Comprehensive Charitable Planning Client Guide for details on deduction calculations and limitations.
2. The Tax Increase and Prevention Reconciliation Act of 2005 (TIPRA) created new code section IRC 4965, which imposes an excise tax on tax-exempt organizations that engage
in prohibited tax shelter transactions for tax years ending after May 17, 2006. “Prohibited tax shelter transactions” include any reportable transaction, any listed transaction
or any transaction that is “substantially similar” to one of those. The excise tax is imposed whether or not the transaction is determined to be abusive. In April 2010, the U.S.
Treasury Department released a “Report to Congress on Charity-Owned Life Insurance (ChOLI),” which analyzes the federal tax law implications of certain ChOLI arrangements
and the tax issues that they present. In particular, the report addresses transactions where a life insurance contract is purchased by a charity with money provided by an
unrelated lender or investor. The report warns that these types of transactions may be prohibited or restricted in the future.
3. Section 101(j) of the Internal Revenue Code imposes income tax on the death benefit of life insurance contracts owned by the employer of the insured unless certain exceptions
apply. All such exceptions include satisfaction of notice and consent requirements set forth in
the section.
 Consult your own tax advisor to determine the deductibility of a specific asset for charitable planning purposes.
The amount of selected death benefit must reflect an insurable loss to the charity based on an established pattern of support and
involvement with the charity, and is subject to full underwriting.