When You Make Charitable Gifts of Life Insurance You May also Benefit from Tax Rules

This week, with December 31st edging closer, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing a way to make a substantial gift to charity while also benefiting from favorable tax rules:

Life insurance can be an excellent tool for charitable giving. Not only does life insurance allow you to make a substantial gift to charity, but you may also benefit from tax rules that apply to gifts of life insurance.

Why Gift Life Insurance?

Life insurance allows you to make a much larger gift to charity than you might otherwise be able to afford. Generally, the amount the charity will receive (the death benefit) is usually much greater than the cost to you (premium payments). As long as you continue to pay the premiums on the life insurance policy, the charity will receive the proceeds of the policy when you die.

Since life insurance proceeds paid to a charity are not subject to income taxes, probate costs, and other expenses, the charity can count on receiving 100% of your gift.

What Are the Possible Tax Benefits?

Giving life insurance to a qualified charity also has certain income tax benefits. Depending on how you structure your gift, you may be able to take an income tax deduction of the premium payments.

Charitable income tax deductions may be available if the charity is named owner and beneficiary of an existing life insurance policy. You can generally deduct the lesser of your cost basis in the policy or the value of the policy at the time of the transfer to the charity.

In addition, subsequent gifts to the charity to pay premiums may be eligible for charitable income tax deductions in the year the gifts are made. You may also receive a charitable income tax deduction if you buy a new policy naming the charity as owner and beneficiary. Also, irrevocable gifts to charity are not…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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