A Gift of Life Insurance
With a gift of life insurance, a donor has several options for making a substantial, cost-effective gift.
OPTION 1—a charitable beneficiary designation
A donor may find that naming the UMass Foundation as the beneficiary of their life insurance policy is a comfortable, powerful way to make a future gift that costs nothing today and provides the flexibility to make changes if needs or goals change. The donor can name us as the:
- Primary beneficiary
- Percentage beneficiary, along with one or more heirs or other charitable beneficiaries
- Contingent beneficiary, to receive the proceeds only if the primary beneficiary cannot
OPTION 2—make a tax-efficient gift of a policy
Does your client own a life insurance policy they no longer need for its original purpose? Perhaps they bought it to pay off the mortgage or cover college tuition expenses, but now their home is paid off and their children are grown. In this case, they may wish to make an immediate gift of their policy.
- A paid-up policy. This is an easy gift to make. In many cases, the after-tax cost of this generous gift is only a fraction of the benefit we receive, and the gift qualifies for a charitable deduction (if the donor itemizes) equal to the policy’s replacement value or their basis in the policy, whichever is less.
- A policy that is not yet paid up. Whether this is a gift of an existing policy or your client plans to purchase a policy and transfer ownership to us, they can make annual, tax-deductible gifts to us to pay the premiums, or we can simply surrender the policy for cash.
OPTION 3—give a policy, receive an income
Your client may find that transferring a policy into a charitable remainder trust (CRT) provides many tax and financial benefits. The trust will pay an income to their beneficiaries for life. When the trust beneficiary dies, the remaining trust assets pass directly to the UMass Foundation. The donor receives an immediate income tax deduction for the present value of our remainder interest when they establish the trust.
Evaluate the fit.
A gift of life insurance may be a particularly good option for clients who:
- Want to make a substantial gift with a modest after-tax cost and no out-of-pocket expense
- Want the ability to change their gift if circumstances or goals change
- Bought a life insurance policy to cover expenses that are no longer an issue
- Would like both a tax deduction and a future income stream
See how it works.
Don bought a life insurance policy when his children were young to protect his family while the children were growing up and ensure that his wife could pay off the mortgage on their house. After many years, he realized the children were grown and successful, and the mortgage was paid off. Don decided to use the policy to meet his charitable goals. With a simple Change of Beneficiary form, he made his wife a 50% beneficiary and the UMass Foundation a 50% beneficiary. A decade later, after Don’s wife passed away, he had a year in which he could use a tax deduction to offset some of his unexpected taxable income. He decided to simply make an outright gift of the paid-up policy to us.
Consider the timing.
Clients who want to qualify for a tax deduction this year must complete an outright gift of a life insurance policy in December. Because no charitable income tax deduction is available for a beneficiary designation, there is no urgency on the timing (although clients should regularly review beneficiary designations to ensure they are up to date).
The UMass Foundation can help.
Ask us for more information about ways to use a life insurance policy to make a charitable gift, including the wealth replacement technique—a strategy that allows the donor to make a gift of appreciated assets now, receive tax benefits, and “replace” those donated assets for their heirs using life insurance proceeds.
If your client has already named us as the beneficiary of a life insurance policy, please let us know. We would like the opportunity to thank them and ensure their gift will be utilized as intended.