A Guide for Donors
Life insurance offers a unique opportunity for philanthropy, allowing individuals to make a significant charitable contribution while also benefiting their own financial and estate planning goals. By making a gift of life insurance to the U.S. Capitol Historical Society (USCHS), you can leave a lasting legacy and support the preservation of our nation’s history. In this guide, we will explore the three options available to donors when making a gift of life insurance and provide valuable insights to consider during the process.
Gifting an Existing Policy to USCHS
One way to support the U.S. Capitol Historical Society is by gifting an existing life insurance policy. To do so, you need to assign all incidents of ownership to the charity, making them both the policy owner and beneficiary. By executing a simple assignment and change of beneficiary form, you can transfer the policy to the charity and qualify for an income tax charitable deduction. Remember to file the necessary documentation with your insurance company to complete the process.
Applying for a New Policy
Another option is to apply for a new life insurance policy with the U.S. Capitol Historical Society as the original policy owner and beneficiary. This approach allows you to provide a substantial gift to the charity without affecting your current cash flow. By naming the charity as the policy owner, you ensure that the proceeds will directly benefit the U.S. Capitol Historical Society.
Designating the USCHS as Beneficiary
If you prefer to retain ownership of your life insurance policy, you can still make a meaningful contribution by designating the U.S. Capitol Historical Society as the policy’s beneficiary. Although you won’t be eligible for an income tax charitable deduction, this option allows you to support the charity while maintaining control over your policy. However, it’s important to note that no income tax deduction will be realized, though a charitable deduction for estate tax purposes may be allowable.
Determining the Charitable Contribution
When you gift a life insurance policy to a charity, the charitable contribution amount is determined by the lesser of two values: the value of the policy or your cost basis in the policy. The value of an existing paid-up policy is considered its replacement cost. For policies with ongoing premium payments, the value is calculated as the interpolated terminal reserve plus any unearned premium for the current period, accrued dividends, minus any outstanding policy loans. You can obtain this figure from your insurance company using IRS Form 712. The cost basis is calculated as the aggregate premiums paid minus cash dividends and surrendered amounts.
Considerations and Benefits
If there are outstanding loans against the policy, it’s important to note that the loan will reduce the charitable deduction and introduce additional complexities. The transfer to charity is considered a bargain sale since the charity assumes the policyholder’s debt. Consequently, the donor’s basis must be allocated between the gift transaction and the sale transaction.
To ensure the eligibility of the U.S. Capitol Historical Society as a beneficiary of your life insurance policy, it’s advisable to seek legal counsel. While most states have legislation that recognizes a charity’s insurable interest in a donor’s life, verifying this aspect with legal professionals adds an extra layer of certainty.
Making a gift of life insurance to the U.S. Capitol Historical Society presents a wonderful opportunity to support the preservation of our nation’s history while potentially providing valuable tax benefits. Whether you choose to gift an existing policy, apply for a new one, or designate the charity as the beneficiary, consult with insurance professionals and legal counsel to navigate the process smoothly. Your gift will help the U.S. Capitol Historical Society continue its important work, ensuring that future generations can appreciate and learn from the rich history of the United States.
