Like many people, you may wonder about the smartest ways to include charitable giving in your plans for your assets after you pass. Just as you want your family to have the financial security they need, it makes sense that you would want to use some of your wealth to provide support for causes about which you feel deeply.
Across the county, Americans gave $410 billion to charities in 2017. While some of that occurs during a person’s lifetime, charitable gifts are one of the most common items included in a last will and testament.
When considering a charitable gift, many people do not realize the many options for giving to charities or nonprofit organizations in the estate planning process. One method that can help address the burden of estate tax on your family is to gift a life insurance policy to a charity or nonprofit.
Gifting a life insurance policy outright
You can simply gift an insurance policy to a registered nonprofit organization. Typically, this is a good option for people who have a life insurance policy that they no longer need.
This benefits you by reducing your taxable estate, sometimes significantly depending on your financial situation.
In turn, it benefits the nonprofit organization by granting the full face amount of the policy upon your death. This amount is usually far greater than the charity would receive if you gave the monthly premium payments as a donation.
Naming a charity as a beneficiary on your life insurance policy
You can also name a charity as a beneficiary to the death benefit of your policy. In this scenario, you continue to pay the monthly premiums on behalf of the organization. While this option does not reduce your estate taxes as much as gifting the full policy, it will offset your estate taxes by the amount of the death benefit.
The charity then receives a donation in the amount of the death benefit on your policy. This amount is usually far greater than the charity would receive if you gave the monthly premium payments as a donation.