Do you own a cash-value life insurance policy? Have you been thinking about donating the policy to your favorite charity? There are two ways to do this—you could gift the policy outright, making the charity the owner and beneficiary, or you could name the charity as the beneficiary when you die. Which choice makes more sense? The answer really depends on a number of factors, including:
• What the charity wants and when it needs the money
• Whether you need a current tax deduction (and are willing to give up control)
• Whether you still want to keep some or most of the benefits of the insurance policy.
If you want or need the federal income-tax deduction, you should make sure that the non-profit is actually a 501(c)(3) entity. Ask the executive director for the organization’s tax status and get them to send you written proof. Then make sure that they want the life insurance policy. In some cases, the organization might simply accept the policy and immediately surrender it to get the cash. In such cases, the charitable gift could end up being much less than what you intended.

Keep in mind you can only take the federal income-tax deduction if you give up all interest in the policy. In other words, you can’t own it or be the beneficiary in any way. If you continue to retain ownership rights to the policy, you should also know that § 2036 of the federal tax code will place the policy in your gross estate for federal estate tax purposes (although your estate could still obtain an offsetting charitable tax deduction as long as the charity is a qualifying organization).
On the other hand, if you choose to remain as the policy owner and leave a bequest rather than a current gift, you will not get a current tax deduction, but you do retain control of the policy. This allows you the flexibility to change beneficiaries if you change your mind about the charity. This also allows you to retain the economic benefits associated with the policy cash value (e.g., policy loans). In summary, giving the policy to a charity through a bequest in your will (e.g., your college, a research foundation, or other group) could be a beneficial way for you to create a lasting memory and to also retain the various ownership benefits of the policy during your lifetime.
Regardless of which path you choose, donating a life insurance policy can effectively leverage the value of your gift, and can leave a much larger legacy to the charity than a simple cash donation. Although term insurance cannot be donated outright, policy owners can still name a charity as the beneficiary. It is also possible to split the policy proceeds between the charity and other parties, such as creditors, relatives or anyone else for whom you wish to leave a bequest. For further guidance on gifting life insurance, consult your life insurance agent or tax advisor.

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