Leaving a Gift through Life Insurance
Charitable giving through life insurance is another alternative for leaving
a legacy at Wilbraham & Monson Academy. When using life insurance for
charitable giving, you should consider the different strategies available and
their respective tax benefits. Listed below are three ways you can help
Wilbraham & Monson Academy with gifts of life insurance.
- Designate the Wilbraham
& Monson Academy as the beneficiary of a life insurance policy
The most straightforward approach is to buy a life
insurance policy wherein you are the owner of the policy and you designate the
charity as the beneficiary. In this scenario, you would maintain control of the
policy, but the charity would collect the insurance proceeds upon your death.
The death benefit qualifies as a tax credit on your final income tax return.
The premiums for the life insurance contract are not eligible for a tax credit.
Since you have designated a direct beneficiary, the life insurance death
benefit would bypass the estate and avoid any probate fees.
If you have an existing life insurance contract,
you can simply change the beneficiary of an existing life insurance contract at
any time.
- Name your estate as the
beneficiary of a life insurance policy
This scenario is similar to the first scenario, in
that you are the owner of the policy. However, instead of naming the charity as
the beneficiary, you name your estate as beneficiary and simply leave
instructions in your Will that the proceeds of the life insurance policy will
be paid to your choice of charities. Again, the life insurance premiums would
not be eligible for a tax credit. However, the death benefit would qualify as a
donation, giving your estate a tax credit on your final income tax return. Note
that the proceeds would not be protected from probate fees, as the death
benefit becomes part of the estate.
- Transfer ownership of the
policy to the Wilbraham & Monson Academy
In this scenario, if a life insurance contract is
set up so that the charity is the owner of the life insurance policy, the
premiums for the contract will qualify for a tax credit. However, since you are
no longer the owner of the policy, the future death benefit will not qualify
for a tax credit.
If you have an existing life insurance policy with
cash value, you can transfer ownership to the charity and name the charity as
the beneficiary. Under this scenario, a tax credit is available for any cash
surrender value that exists at the time that the policy is transferred. In
addition, a donation tax credit will also be available for future payments of
life insurance premiums.
Since an actual disposition has been triggered at
the time of transfer, there may be a tax liability if the cash surrender value
exceeds the adjusted cost base of the policy. You will need to weigh the tax
credit against the tax paid as a result of disposition. Also, since you've
relinquished control, you will no longer have any rights (such as the right to
change the beneficiary) in the policy.
For more information, please contact:
Christina Cronin, Director of Major Gifts and Campaign Coordinator
413.596.9189 or ccronin@WMA.us
