Many people own some form of life insurance. In some cases, however, a life insurance policy may no longer be needed to provide for an individual’s family or other heirs.
An important, but frequently overlooked, role of life insurance is the one it can play in charitable giving. Life insurance itself can be the direct funding medium of a gift, permitting the donor to make a substantial future gift, with immediate tax benefits. Life insurance can also be used to “replace,” for heirs, an asset that has been given to Boston College.
A donor may contribute to Boston College a life insurance policy that is no longer needed for its original purpose. Simply ask the life insurance company for a "designation of beneficiary" form. To make an irrevocable transfer that will receive gift credit, the donor must name Boston College both beneficiary and owner. The donor will receive gift credit for the cash surrender value of the policy and may claim that value as an income-tax deduction in the year of the transfer. In general, the University will redeem the policy for its cash value and use the proceeds for the purpose designated by the donor.
Please consider these gift options:
- Boston College as beneficiary: A donor can name a charitable organization as the primary beneficiary of a life insurance policy. The donor retains ownership of the policy and access to the policy’s cash value. Although the face value of the policy will be included in the donor’s gross estate, no federal estate-tax liability will result from the inclusion of the policy because of the charitable deduction.
Since the donor retains ownership of the life insurance policy, no income-tax charitable deduction is allowed for the value of the policy upon designation of Boston College as the beneficiary or for subsequent premium payments.
A donor may also name Boston College as a successor beneficiary to receive the proceeds in the event the primary beneficiary(ies) is no longer living. Once again, should the proceeds be paid to Boston College, the donor’s estate would be allowed an estate-tax charitable deduction.
- Boston College as owner and beneficiary: A donor who desires more immediate tax benefits may wish to consider the irrevocable assignment of an insurance policy to Boston College. Upon such an assignment, the donor is allowed an immediate federal income-tax charitable deduction for the lesser of the policy’s fair market value or the net premiums paid. In most cases, Boston College would cash in the policy immediately and use the proceeds for educational purposes.
- Wealth replacement: Some individuals, concerned about providing for heirs in the future, may hesitate to make a significant charitable gift. However, using life insurance to “replace” the value of assets given away to charity may enable you to meet both family and charitable goals. Often, the tax savings and income received from a charitable gift (such as a charitable remainder trust) may be used to pay the premium on an insurance policy to benefit heirs. Your advisors can help you to structure such a wealth replacement strategy that best fits your situation.
For more information, please contact the Office of Gift Planning.
The information on this site is not intended as legal, tax, or investment advice. For such advice, please consult an attorney or a tax or investment professional.