FAQ: I have a life insurance policy I don’t really need anymore….can I give it to Duke?
As one goes through life, one collects things that are important at that moment, but later….well…not so much. Our office receives a call every month or so from donors who purchased a life insurance policy years ago, often when their kids were born (or when they were starting a business). “I bought it to protect my family in case something happened to me, but now, the kids are out of college and doing well so we really don’t need it. Can I give this policy to Duke?”
The good news — Yes, you can!
There are several ways that you can use a life insurance policy to have an impact at Duke University.
1. Name Duke University as the beneficiary – This is a simple way to leave a substantial legacy at Duke and can be accomplished by completing a beneficiary designation form provided by your insurance carrier. Duke would receive the “death benefit” (sometimes called the “face amount”) of the policy when you pass away. You would still be the owner of the policy and can change the beneficiary if you wish to do so in the future.
You will not receive an income tax deduction for this gift because you still retain ownership of the policy.If premiums are still owed on the policy, you will continue to pay those as well. Still, this may be an easy way to have a profound impact on the programs and places at Duke that are most important to you.
2. Transfer ownership of the policy to Duke – If a policy no longer requires premium payments, you may be able to name Duke University as both the owner and beneficiary. Duke, as the new owner of the policy, will then “surrender” the policy and direct its cash proceeds to whatever use you have chosen at the University. By donating a “paid up” policy, the policyholder may be eligible for an income tax deduction.Generally speaking, a donor’s income tax deduction will be the lesser of (a) the policy’s value or (b) the donor’s basis in the policy.The basis of a policy is, essentially, the total amount of premiums you paid minus dividends and withdrawals. In order for a donor to claim an income tax deduction, a qualified appraisal (and I.R.S. form 8283 “appraisal summary”) may be required for your personal income tax return.
Before Duke will accept any life insurance policy as a gift, the University’s Gift Policy Committee will need to examine the policy carefully.If there are any loans against the policy’s cash value, donating the policy may require the donor to recognize capital gain and Duke may not be able to accept it as a gift.
3. Terminate the policy and donate the “cash value” – Some types of insurance policies, such as “whole” or “universal” policies, can build-up cash reserves through excess premium payments and earnings. This “cash value” can be tapped in a variety of ways. If the policy is no longer needed, the owner may surrender the policy and receive the cash outright. This cash can then be donated to Duke – clean, simple and the donor receives a deduction for the cash donation. If the owner has no gain in the policy, this may be the best way to use the policy to make a charitable gift.
Surrendering a policy may result in tax liability and fees owed by the policyholder.Before surrendering a policy, the donor should work with his or her advisors and the insurance company to investigate these issues fully.
Other types of life insurance policies you may own or use (there are many) — Although you may not receive a tax deduction for some of these (because you are not the owner), the policy can still be used to leave a legacy gift for Duke University:
- The most common type is Group Term life insurance provided by an employer. You can name Duke University as the beneficiary – for all or part of the proceeds. The cost of any death benefit over $50,000 is subject to income tax to the employee but can be left to Duke and no income tax will be due. Group Term policies usually expire when employment with the company ends.
- A “Board of Directors” charitable life insurance policy. Many companies have issued these over the years and the death benefit can be directed to Duke University.
- Rather than donating a life insurance policy, we sometimes suggest that donors utilize an existing, or new, policy for “wealth replacement” when it makes more sense to use other assets to make a “tax-wise” current or deferred gift to Duke (and leave the cash from life insurance to loved ones).
Please contact us if you would like to learn more or discuss which option is right for you. We would be happy to talk with you and your advisors about what may be the best choice for you.
Because there are complex rules regarding the donation of a policy, we urge you to discuss these issues with your personal tax advisors.