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Charitable Life Insurance

Insuring Your Charitable Desires are fulfilled

As a donor, you are placing your faith in the Catholic United Financial Foundation to ensure that your current and future charitable desires are fully accomplished. The Foundation has a eighteen year history of serving the members of Catholic United Financial. Our Foundation enjoys the support of Catholic United Financial which has served the good of its members and the Catholic community for 137 years. Together, Catholic United and the Foundation act as stewards of your financial needs and in ensuring that your charitable interests are completely fulfilled.

A Gift Providing Funds for Life Insurance is Two Gifts from You

plantWhen you provide a gift to the Foundation in order to allow the Foundation to purchase a life insurance policy, you are actually providing two gifts. You are not only contributing a financial gift, in this case used by the Foundation to cover life insurance premium payments which make the policy possible, but you are also gifting yourself as insurable to the Foundation to increase the ultimate benefit to your designated charitable organizations. The ultimate benefit and value to the beneficiaries is a combination of both of these gifts. The giving of cash or current assets is important, but by the second gift of insurability, the amount and impact of the gift is significantly increased at a future date. This second gift increases substantially the value and impact of the final gift the Foundation is able to provide to your selected recipients.

Many Catholic United Members have found charitable life insurance to be a practical and affordable way to make a significant, meaningful charitable gift, and there's great flexibility depending on your charitable goals and abilities.

By making Catholic United Financial Foundation the owner and beneficiary of the charitable life insurance contract, you may be able to take a charitable tax deduction for ongoing premiums paid on the policy. Upon the insured's death, the death benefit goes to benefit the charities selected by you.

Tax and Financial Benefits of Giving Life Insurance

  • You receive a charitable tax deduction for each premium paid including past premiums paid on existing policies and all new premiums paid.
  • Once the policy has been fully given to Catholic United Financial Foundation, you can pay premiums using cash or publicly traded stocks, allowing you to bypass capital gain taxes on securities held more than 1 year.
  • Since life insurance is typically a non-probate asset, the life insurance proceeds will be paid immediately providing your chosen charities with support more quickly.

"Leveraging" the amount passed on to charity

coupleA life insurance policy has the potential to make a charitable gift larger than the premiums paid into it. A life insurance policy may produce gifting "leverage" because the death benefits it produces usually exceed the premiums paid in. As a result a policy has the potential to substantially increase your charitable legacy. Whether any leverage is produced depends on the size of the policy death benefit, the health and life expectancy of the insured and the number of premiums paid. 

As a hypothetical example, suppose a Catholic United Member desires to gift $50,000 to his Church at his death. Assume that that the Member is insurable and that he can purchase a $70,000 life insurance policy on himself for an annual premium of $2,500. If he dies after 20 years, his $50,000 in total premiums would produce a $70,000 death benefit for his Church, $20,000 more than the premiums he paid. The life insurance policy gives him the potential to leverage his bequest into a larger sum. Whether there is leverage and the actual amount depends on policy performance.

Making a charitable gift at a "discount"

Life insurance may also be used to potentially make a charitable gift for less than its face value. That's because the premiums paid for the policy are usually less than the death benefit it pays out. As a result, a life insurance policy may give you an opportunity at your death to provide a benefit to charities of your choice at a "discount." Whether there is a discount and its amount depend on the size of the death benefit, the health and life expectancy of the insured and the number of premiums paid.

As a hypothetical example, suppose a Catholic United Member wishes to transfer exactly $50,000 to her Church at her death. Assume she is in good health and that she is able to purchase a $50,000 policy on her own life. She names the Church as the beneficiary. If the premiums are $1,500 and she dies after 20 years, she will have paid a total of $30,000 but her Church will receive $50,000, $20,000 more than she paid. By using the life insurance policy to make her donation, she has contributed the $50,000 to her Church at a discount.

Alternatives for owning the life insurance policy

In using the "leveraging" and "discounting" strategies, there are two general ways to own the policy. You may own it yourself or you may arrange for the charity to own it. If the charity owns the policy, it will name itself as the beneficiary. If the charity owns the policy, you may receive an income tax benefit. If you buy the policy and then transfer it to the charity, you may qualify for a charitable income tax deduction for the fair market value of the policy. If you make additional gifts of cash to the charity to help it pay the premiums, you may qualify for additional

"Replacing" assets given away to charity for the family

During life or as part of your wealth transfer plan, you can make a variety of charitable gifts. These gifts reduce what is left for your family to inherit. If you don't want your charitable gifts to reduce what is left for your family, life insurance may help you "replace" part or all of the assets given away.

Replacing lifetime gifts

You may make immediate direct gifts to your favorite charities while you are alive. These gifts can give you the satisfaction of seeing your gifts being used to benefit the charity. The death benefit from a life insurance policy on your life could help you replace for your family all or part of the charitable gifts you've made.

Replacing charitable gifts at death

You may have included specific written instructions to make charitable gifts in your will or trusts. These are called charitable bequests. The personal representative of your estate or your trustee makes the donation in your name after your death. Life insurance may help replace some of the value of your charitable bequests and may potentially reduce the impact on your family's inheritance.

Testamentary gifts of tax-qualified accounts

coffeeA type of asset people often consider donating to charity at death is tax-qualified accounts (e.g. pension plan balances, 401(k) accounts and IRAs). Tax-qualified account balances are attractive as charitable gifts because family members who inherit them usually must pay income taxes as they withdraw funds from the accounts. Catholic United Financial Foundation, on the other hand, receive distributions from tax-qualified accounts income tax free. Thus, the family members will only be able to spend the portion of the account left over after income taxes on the withdrawals have been paid. Depending on their marginal tax brackets and the possible application of state income taxes, anywhere from 15% to 40% of the account balance could be lost to income taxes. Even worse, if the taxable estate is large enough, federal/state estate taxes on the account may also be triggered. This will reduce the account balance left over after taxes for the family even more. When both estate and income taxes are due, as much as 80% of the account could potentially be lost to taxes. This could leave only 20% for the family. Qualified charities, on the other hand, receive distributions from tax-qualified accounts income tax free. That's why these accounts can be attractive as charitable gifts at death.

A life insurance policy on you can be used to potentially "replace" the account's value. If you don't need to rely on the IRA income during retirement, you can take taxable withdrawals from the account to help pay the policy premiums.

As a hypothetical example, suppose a Catholic United Member has a $100,000 IRA balance at his death and that his heirs are in a 30% income tax bracket. It would cost them $30,000 in income taxes to terminate the IRA and convert it into cash they could save, invest or spend. These income taxes represent IRA funds that will be lost to the family forever. On the other hand, if the Catholic United Member names his church as the IRA beneficiary through a Foundation fund, it can receive the entire $100,000 income and estate tax free. If he is insurable, he may be able to replace the $100,000 IRA balance for his family with the death benefits from a life insurance policy by taking taxable distributions from his IRA to help pay premiums. If he is over 59½, he can receive these distributions penalty-free.

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A charitable bequest is one or two sentences in your will or living trust that leave to Catholic United Financial Foundation a specific item, an amount of money, a gift contingent upon certain events or a percentage of your estate.

an individual or organization designated to receive benefits or funds under a will or other contract, such as an insurance policy, trust or retirement plan

Bequest Language

"I, [name], of [city, state ZIP], give, devise and bequeath to the Catholic United Financial Foundation [written amount or percentage of the estate or description of property] for its unrestricted use and purpose."

able to be changed or cancelled

A revocable living trust is set up during your lifetime and can be revoked at any time before death. They allow assets held in the trust to pass directly to beneficiaries without probate court proceedings and can also reduce federal estate taxes.

cannot be changed or cancelled

tax on gifts generally paid by the person making the gift rather than the recipient

the original value of an asset, such as stock, before its appreciation or depreciation

the growth in value of an asset like stock or real estate since the original purchase

the price a willing buyer and willing seller can agree on

The person receiving the gift annuity payments.

the part of an estate left after debts, taxes and specific bequests have been paid

a written and properly witnessed legal change to a will

the person named in a will to manage the estate, collect the property, pay any debt, and distribute property according to the will

A donor advised fund is an account that you set up but which is managed by a nonprofit organization. You contribute to the account, which grows tax-free. You can recommend how much (and how often) you want to distribute money from that fund to The Foundation or other charities. You cannot direct the gifts.

An endowed gift can create a new endowment or add to an existing endowment. The principal of the endowment is invested and a portion of the principal’s earnings are used each year to support our mission.

Tax on the growth in value of an asset—such as real estate or stock—since its original purchase.

Securities, real estate or any other property having a fair market value greater than its original purchase price.

Real estate can be a personal residence, vacation home, timeshare property, farm, commercial property or undeveloped land.

A charitable remainder trust provides you or other named individuals income each year for life or a period not exceeding 20 years from assets you give to the trust you create.

You give assets to a trust that pays our organization set payments for a number of years, which you choose. The longer the length of time, the better the potential tax savings to you. When the term is up, the remaining trust assets go to you, your family or other beneficiaries you select. This is an excellent way to transfer property to family members at a minimal cost.

You fund this type of trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. You can also make additional gifts; each one also qualifies for a tax deduction. The trust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets. When the trust terminates, the remaining principal goes to The Foundation as a lump sum.

You fund this trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. Each year the trust pays you or another named individual the same dollar amount you choose at the start. When the trust terminates, the remaining principal goes to The Foundation as a lump sum.

A beneficiary designation clearly identifies how specific assets will be distributed after your death.

A charitable gift annuity involves a simple contract between you and The Foundation where you agree to make a gift to The Foundation and we, in return, agree to pay you (and someone else, if you choose) a fixed amount each year for the rest of your life.

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