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THINK BEFORE DONATING THAT POLICY TO CHARITY
By: Stephen M. Watson, Esq.
Wealthy seniors sometimes wish to donate a large life insurance
policy to their favorite charitable organization. They do this:
- To receive a deduction on their income tax return for the amount
of the cash value of the policy; and
- To reduce the size of their gross estate for federal estate
taxation purposes.
Once the gift is made, the charitable organization is charged with the
duty of continuing the premium payments (though the donor often gives
sums each year to the organization to offset these payments). Before you
donate that policy, however, don't miss out on a great opportunity for
advantageous financial planning.
Instead of simply donating the policy, you should first determine the
fair market value of the policy by obtaining a quote for the sale of the
policy. If the fair market value (the amount of the quote) is higher
than the cash surrender value, the client may have an opportunity to
take a larger tax deduction on his Federal income tax return. Further,
once the policy is given to the nonprofit organization, the organization
should sell the policy, giving it immediate cash to use as it pleases.
Under this scenario, there would be no continuing premium obligations.
This is a win-win situation. The donor gets to consider taking a
larger deduction on the donor's income tax return for the gift, and the
nonprofit organization gets to receive cash immediately (instead of
having to wait for the donor to die before receiving the cash). The
nonprofit organization has the additional benefit of not having to worry
about keeping up expensive premium payments during the donor's lifetime,
and the donor gets to see the contribution go to work at a most
opportune time-while still living!
Stephen M. Watson, President of Viatical Settlement Professionals,
Inc., is an attorney and licensed Viatical Settlement Broker. He is a
graduate of The University of Virginia, and Washington & Lee
University School of Law. |
