Sponsored by the
The SIOR Foundation is a 501 (c) ( 3) not-for-profit organization.
All contributions are tax-deductible to the extent of the law.
Promoting and supporting initiatives that educate, expand,
Noland MacKenzie (“Mac”) Canter III, Copilevitz and Canter, LLC, Washington, DC, has specialized
in providing legal services to tax-exempt organizations since 1977. He has written many articles in
the area of tax-exempt organizational law, and formerly was the co-editor for federal tax issues of
A Great Opportunity Gets Better:
Life Insurance Charitable Contributions
Life insurance provides a great way to make a charitable contribution to the SIOR Foundation or any charitable organization.
Thanks to relatively new “charitable giving riders,” you can make
a gift at no cost whatsoever!
Some life insurance companies provide a charitable giving
rider at no cost if the face amount of the policy is of a certain
amount. In the June 2010 issue of Forbes, Mark Cussen noted:
“These riders can be attached to policies with face values of over
$1 million and then pay an additional 1-2% of the…face value
to a qualified charity of the policyholder’s choice…These rid-
ers usually come at no additional cost and often do not increase
the premium or reduce the cash value or the death benefit of the
There is no tax deduction if you designate the SIOR Foundation
as the death beneficiary, since you still own the policy. You can
change the designation and can also exercise other rights, which
may include cashing in the policy for “surrender value” or bor-
rowing from the policy. So, as owner, when you pay premiums
there is no deduction.
The advantage of remaining the policy owner is that you retain
flexibility. Moreover, your estate will be eligible for an estate tax
charitable contribution deduction equal to the death benefit paid
to the SIOR Foundation—if you haven’t changed the designation prior to your demise. Your taxable estate includes the death
benefit, but there is an offsetting estate tax charitable contribution
To claim an income tax deduction now, you must transfer
ownership of the policy to a non-profit charitable organization
such as the SIOR Foundation. This empowers the non-profit to
exercise all rights in the policy, including designating itself as the
death beneficiary. You remain as the “insured life” but are not the
When you contribute a paid-up life insurance policy, you are
entitled to a tax deduction equal to the lesser of either the policy’s
fair market value (FMV) or your cost basis in the policy.
FMV is generally defined as replacement cost. This usually is
equal to the single premium that would purchase the same death
“Thanks to relatively new
“charitable giving riders” (on
life insurance policies) you
can make a gift at no cost
Cost basis is equal to the total of premiums paid less dividends
received and cash taken out.
If the policy is not fully paid-up when you donate it, the deduction is the lesser of either the “interpolated terminal reserve”
value” or the cost basis.
Interpolated terminal reserve is generally slightly more than
cash surrender value. There may be an adjustment for the last
After contributing the policy to SIOR Foundation, if you pay
premiums you can take a deduction for the payments because
they are “for the use of” SIOR Foundation. Or you can make cash
gifts to the Foundation to enable it to pay premiums. The latter
is generally preferred. It simplifies the Foundation’s written gift
acknowledgment, which you need to substantiate the deduction.
The type of life insurance policy (term, whole, or universal)
may lead to different outcomes. And results will differ if there is
a loan against the policy. Always check with your tax advisor.
Caveat: This article is not intended, nor is it provided, as specific
legal advice but, rather, only as a general discussion of concepts
and principles as news items. Please consult with your attorney
before utilizing any techniques stated herein. This material has
not addressed all issues, principles, exceptions, and exclusions
that may apply to a specific transaction. Only your attorney with
knowledge of the unique facts of your specific situation is qualified to provide advice in regard to tax and estate planning.