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Making the Colleges
a beneficiary of your life insurance policy
You may wish to make the Colleges the beneficiary (or
a contingent beneficiary) of a life insurance policy
as a way to make a sizeable future gift. You retain
lifetime ownership of the policy, keeping the right
to cash it in, borrow against it, and change the beneficiary.
A gift of this nature is treated much like a bequest
made through your will. Because you retain the ownership
of your asset (the policy), you will not receive an
income tax charitable deduction for this future gift
or for your premium payments during your lifetime. The
policy's proceeds will be included in your gross estate,
and your estate can take an estate tax charitable deduction.
Making a gift
of your policy to the Colleges
You may wish to transfer ownership of a policy to Hobart
and William Smith, or purchase a new policy with the
Colleges as owner and beneficiary. If you make the Colleges
the owner and beneficiary of a policy, you are entitled
to certain tax advantages.
| Example:
Now that their children are grown, Mr. and Mrs.
Snyder '50 have decided to review their life insurance.
In the course of consolidating various policies,
they decide to donate a paid-up $100,000 policy
to the Colleges. They designate Hobart and William
Smith the owner and irrevocable beneficiary. Since
the policy is paid-up, they can take an income
tax charitable deduction for the lesser of the
net premiums paid or for the replacement cost
if they were to buy a comparable policy today.
They decide to endow a Snyder Family Scholarship
Fund with their gift.
The Snyder's son, who graduated in 1968, has purchased
a new $10,000 whole life policy for which he designates
the Colleges owner and irrevocable beneficiary.
He will make annual premium payments of approximately
$950, and he can take a charitable deduction for
the amount of his payments. He designates that
his insurance policy will ultimately be put into
the Snyder Family Scholarship Fund to increase
the endowment of the family gift. |
Using life insurance
as a wealth replacement plan
Life insurance may be used to replace the value of assets
in your estate that you have given to the Colleges.
You may use the tax savings that are produced by your
charitable gift to purchase a life insurance policy
that will pay your family members the equivalent of
the amount you have donated or the amount that the family
members would have received following payment of applicable
estate tax.
| Example:
Dr. Frost, age 60, wants to make a gift that will
ultimately be used to purchase equipment for the
biology department, but he is concerned for his
children and their futures. He creates a 6 percent
charitable remainder unitrust for $500,000, which
yields a tax savings to him of $66,537. He then
purchases a $500,000 whole life insurance policy
that will maintain his children's inheritance.
His annual premium payments are $22,000, which
he pays for the first three years from his tax
savings and subsequently with the increased income
from his trust. |
Creating a life insurance
trust
You may want to set up an irrevocable life insurance
trust (ILIT). An ILIT removes the life insurance from
your estate to help reduce estate tax while providing
other benefits. For example, upon one's death, the proceeds
of the life insurance policy may remain in the trust
to provide income for the surviving spouse, but stays
outside of the spouse's estate for estate tax purposes.
Or, the trust could be used to distribute proceeds to
children of a previous marriage. Although ILITs can
be expensive and more complicated than owning life insurance
directly, they may be an attractive option in certain
situations.
Please Note:
Gifts of this nature should be carefully considered
in relation to your comprehensive financial and estate
plans. We strongly recommend that you consult an attorney
and/or financial adviser before completing a planned
gift to the Colleges.
Thank you for remembering Hobart and William Smith
Colleges.
| Recent
HWS Example:
Maureen Collins Zupan ’72 –
Insurance |
|  I
used permanent life insurance to make a gift (and
join The Wheeler Society) several years ago. I
chose life insurance because, at the time of my
gift, I didn’t have the resources to make
a big cash outlay, but for $300 a year, I could
make a gift that would ultimately give the Colleges
$35,000. By giving a gift using insurance, I felt
as if I was making a down payment on a much bigger
gift – the kind of gift I really wanted
to make, but didn’t yet have the resources.
At my age then, the premiums were really low,
which is one of the great things about life insurance
– the younger you are, the less you have
to pay for a bigger gift! |
Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. This Planned Giving section has been developed for Hobart and William Smith Colleges by Future Focus.
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