Insight on Estate Planning - February/March 2013: Should you donate life insurance to charity?

by Adler Pollock & Sheehan P.C.

For the philanthropic minded, donating a life insurance policy to a favorite charity should rank high on their list of possible giving strategies. Why? Because doing so is an excellent opportunity to make a larger donation than may otherwise be affordable.

However, donating life insurance isn’t right for everyone. If, for example, your family’s financial security after you’re gone might depend on the policy’s payout, donating it won’t be a viable idea, even if it does allow for a larger donation. In addition, there are tax implications to consider.

An attractive option

Have you reached a point in your life where you no longer need life insurance? Perhaps your children are financially independent and your IRAs, 401(k) plans or other savings are more than sufficient to meet your retirement needs. Under these circumstances, donating life insurance to charity may be an attractive option.

Consider Clare, for example. She’s a 65-year-old widow with two children, both of whom are financially successful. She has substantial savings in an IRA and her company’s retirement plan but continues to pay premiums of $10,000 per year on a $1 million life insurance policy. The policy’s cash surrender value is $400,000, and Clare’s cost basis in the policy, based on premiums paid, is $250,000. If she simply surrenders the policy in exchange for its cash value, she’ll recognize $150,000 in ordinary income.

In a meeting with her financial advisor, Clare expresses an interest in giving more to charity. The advisor explains how Clare can accomplish this goal — and improve her cash flow — by donating her life insurance policy. Clare would enjoy a charitable income tax deduction for the initial donation as well as for any premiums she pays in the future. And when Clare dies, the charity would receive a $1 million gift.

The tax impact

The most tax-effective way to donate life insurance is to transfer the policy so that the charity becomes the owner and beneficiary. You’ll generally be entitled to an immediate charitable deduction for income tax purposes. If you continue to pay the premiums, each payment is also a deductible charitable donation. In addition, the policy is removed from your taxable estate, which can mean significant estate tax savings.

You may be surprised to learn that you can’t necessarily deduct the policy’s face value or cash surrender value; rather, the deduction is limited to the policy’s fair market value or your cost basis, whichever is less. Determining a policy’s fair market value is complex, requiring consideration of factors such as the policy’s cash surrender value, the cost of purchasing a comparable policy and the insurer’s actuarially calculated reserves.

Cost basis generally means the total amount of premiums you’ve paid on the policy (less any dividends received). In our previous example, assuming that the policy’s fair market value is roughly equal to its cash surrender value, Clare would be entitled to a $250,000 charitable deduction.

Consider your family first

If you have a charity that’s near and dear to your heart, donating a life insurance policy to it can be rewarding. But before taking action, discuss with your estate planning advisor your goals and your family’s financial situation. He or she can help you determine whether you can donate the policy while still providing for your loved ones to the extent you desire.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Adler Pollock & Sheehan P.C. | Attorney Advertising

Written by:

Adler Pollock & Sheehan P.C.

Adler Pollock & Sheehan P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.