Maximizing a Charitable Gift

Posted by Pekin Insurance on Dec 09, 2016

Are you very involved in a church or an organization that promotes a specific cause, or do you know someone who is?  Perhaps they are strong supporters of a certain college or university.  


Most people have some level of interest in supporting charitable causes.  Generally, they make monetary contributions on a semi-regular basis, helping the charity or organization take care of day-to-day expenses.  For some, that is enough, but others would like to be able to do more.  Unfortunately, they really don’t know how.  Most people, when asked about charitable giving or “leaving a legacy,” think only individuals who can give hundreds of thousands of dollars or more can do that.  In reality, anyone can leave a legacy.

 The easiest way for you to create a lasting legacy is through life insurance, which can allow a charity to leverage even a modest gift of cash into a much larger deferred benefit through the life insurance death benefit.  You can either help the charity purchase a life insurance policy on your life, with the charity named as owner and beneficiary, or you can purchase the policy yourself and name the charity as beneficiary.  Either way, the organization receives the death benefit at your death as a lasting legacy. 

Let’s look at an example.  Joan Donor, age 60 and in good health, has been a volunteer at her local hospital for a number of years and now wants to do more for the hospital.  She decides that a life insurance policy is a good way to leverage a gift.  One option for her would be to donate a $50,000 CD (that she doesn’t need for living expenses) to the hospital as a gift so they can buy a life insurance policy on her life.  Her $50,000 donation, deposited into a Pekin Life Insurance Company Single Premium Whole Life policy, could possibly generate a deferred gift to the hospital totaling over $113,000 upon her death.

Or perhaps Joan doesn’t have $50,000 sitting in a CD that she doesn’t need.  She says she can, though, make additional annual gifts without a problem.  By committing to a new annual gift of $5,000 per year for just five years, Joan can use our 10-Pay Preferred Whole Life policy to leverage her gift to almost $47,000 in ultimate benefits to the hospital upon her death.

This annual giving scenario involves a combination of a Pekin Life Insurance Company 10-Pay Preferred Whole Life and an Advance Premium Deposit Account (APDA).  Once we have a dollar amount commitment from her, we take a little over half that amount and calculate how much death benefit it would buy using the 10-Pay Whole Life.  In her case here, that’s a premium of $2,639.02 to buy a $46,891 life policy.  The balance of her $5,000 annual gift ($2,361.16) goes into the APDA, where it earns taxable interest.  As you will see in the chart below, the money in the APDA will accumulate to $12,627.03 after five years, which is sufficient to cover the remaining five years of premium on the life policy.  As far as Joan and the charity are concerned, the policy is “paid up.”

 Joan Donor.png


If, at the end of the initial five years, Joan is still healthy, she can decide if she wants to “renew” her gift for another five years.  If she does so, her “new” $5,000 annual gift can purchase an additional life policy of $40,582, leveraging her total gift to over $87,000 using the exact same procedure that was used for the first five-year commitment.  Renewing her commitment again in five years to purchase a third policy with a $34,941 face amount can bring her leveraged gift to over $122,000!  That’s quite a difference she can make!

In the scenario we’ve described, Joan has chosen to name the hospital foundation as owner and beneficiary of the policy.  Therefore, the gift to the foundation of the initial premiums and of the ongoing premiums to maintain the policies will result in an income tax charitable deduction each time a contribution is made.  On the other hand, if Joan were to decide to retain ownership of the policy herself and simply name the hospital foundation as beneficiary, she gets no immediate tax deduction for premiums paid but does receive a charitable estate tax deduction at death.

Most charities welcome deferred gifts of life insurance and will go out of their way to recognize and honor those donors.  Life insurance is a great way to help you leave a legacy for the organizations you support.  



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