Gift of a Life Insurance Policy to Charity

Gift of a Life Insurance Policy to Charity

A gift of a life insurance policy to charity can be a valuable gift planning option for donors if they desire to make a significant future donation.

Two Options to Consider

Timing of Donation vs. Timing of Receipt

  1. Donating the ownership of the life insurance policy to GiveWise immediately

    • Policy Holder (Donor) receives an immediate tax receipt and gets receipted as the donor covers future premiums.

  2. Retaining ownership of the policy and naming GiveWise as the beneficiary of the policy

    • Policy Holder (Donor) receives a tax receipt at policy maturity, or the estate receives a tax receipt upon the donor’s passing.

1. Charity Becomes the Owner of the Life Insurance Policy

This gift planning option works best if the Policy Holder requires a donation receipt immediately.

  • Ownership Transfer:

    • Policy holder irrevocably transfers the ownership of an existing life insurance policy to a charity.

    • Policy holder receives a donation receipt for the fair value (FV) of the policy on the date of the ownership transfer.

    • An actuarial assessment may determine if a donation receipt in excess of the Cash Surrender Value (CSV) could be issued.

  • Premium Payments:

    • If ongoing premiums are required, GiveWise, as the owner, is responsible for payments.

    • If the Policy Holder chooses to continue making premium payments, they receive a donation receipt for those payments.

  • Policy Maturity:

    • When the policy matures, proceeds are paid directly to GiveWise.

    • No additional donation receipt is issued to the donor’s estate for these proceeds.

    • GiveWise distributes proceeds to named charities as instructed by the original Policy Holder.

Tax Planning Tips

  • Policy holder will realize taxable income for the difference between the Adjusted Cost Base (ACB) and the Cash Surrender Value (CSV).

  • If the policy has a Fair Value exceeding the CSV, the donation receipt will be issued for the FV.

  • Excess donation receipt amounts can offset other taxable income.

Example: Janice’s Gift of a Life Insurance Policy

  • Face Value: $1,600,000

  • Cash Surrender Value: $300,000

  • Fair Value: $1,300,000

  • Adjusted Cost Base: $150,000

  • Annual Premium: $2,500

Janice donates the policy to GiveWise and continues paying the premiums:

  • Receives a donation receipt for $1,300,000 (FV of the policy).

  • Receives donation receipts for future premium payments.

  • Incur taxable income of $150,000 (CSV - ACB).

  • Has $1,150,000 in excess donation receipts to offset other taxable income.

2. Charity is Named the Beneficiary of a Life Insurance Policy

This gift planning option works best if the Policy Holder needs a donation receipt in their estate rather than during their lifetime.

  • Beneficiary Designation:

    • Policy holder names GiveWise as the beneficiary while retaining ownership of the policy.

    • Policy holder can divide the policy among multiple charities using GiveWise’s Life Insurance Bequest Dispersal Worksheet.

  • Policy Maturity:

    • Upon maturity, life insurance proceeds are paid to GiveWise.

    • A donation receipt is issued for the proceeds, benefiting the estate.

    • GiveWise grants proceeds to named charities per the Policy Holder’s instructions.

Tax Planning Tips

  • The estate receives a charitable receipt to help offset taxes owing.

  • Life insurance proceeds paid directly to GiveWise:

    • Avoid probate and estate administration fees.

    • Funds are distributed quickly through GiveWise’s granting process.

    • Proceeds are protected from estate creditors.

We Love to Help!

If you need further assistance or have questions about the many benefits that a GiveWise Giving Fund offers, please contact:

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