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Living Legacy: Charitable Giving Through Insurance

By: Anna Martin - Updated: 12 Sep 2012 | comments*Discuss
Legacy Will Beneficiary Tax Tax Credit

There are many ways to be remembered after your death. The giving of Life Insurance has become a popular way of doing this. Leaving a Living Legacy is a low cost way to endow a favourite institution or association with funds, and will help ensure you minimise the amount of final tax payable on your death. It also does not have any impact on the beneficiaries you have named in your Will. A Living Legacy is a way of donating a sizable chunk of money to a worthy cause.

Setting up a Living Legacy through insurance is a straightforward procedure. Charitable giving in this way is an easy estate planning solution, but in order for it to be effective the policy has to remain in place permanently, until your death. Special attention should also be paid to the way your Life Insurance policy is structured. The reason for this is that it will determine what type of tax credit you are eligible for.

How Does it Work?

  • You may wish to set up the policy with the charity of your choosing, naming the organisation as the owner and beneficiary. Doing this will ensure the insurance policy proceeds will go directly to the charity. A sizeable yearly tax credit will also be generated by the insurance premiums paid by you each year.
  • You could consider setting up the policy naming the charity as beneficiary. Provided that the policyholder is the same person as the donor, you will receive a tax credit.
  • Charitable giving through insurance is financially effective because it provides a substantial asset through a relatively small investment. There are also no administrative costs involved, and no potential estate disputes, which are sometimes associated with bequests left in a Will.

Should You Consider Making a Charitable Donation?

People leave donations to charity in their Will for any number of reasons, amongst these is the desire to leave a lasting imprint on society, in memory of a loved one, or simply as a tax break. Leaving a charitable gift has very few downsides, because you are helping others to benefit whilst you also benefit financially and personally. With good management the value of the donor’s gift can increase, which will result in a larger future gift.

Gift Options

Charitable Gift Annuity

This is an attractive option for giving highly appreciated property to a charity. The reason for this is that the donor’s tax reduction will be based on the donated property’s appreciated market value. This is highly economical and convenient to set up.

Charitable Remainder Trust

This is a popular way of giving funds to a charitable cause. The trust provides for distribution to one or more beneficiaries, at least one of which is not a charitable organisation. The policy must be paid annually from the onset until death, or a fixed term of years. On the donor’s death the policy’s remainder interest will be paid to the qualified charities.

Life Insurance

This type of insurance is a key element to every estate plan. Tax laws encourage giving in this way because it is a convenient way of donating. All, or a portion, of the proceeds of a policy can be donated to one, or many charities.

Donating to charity through a Living Legacy will not only give you peace of mind, knowing your gift with make a difference to the named charity, but will bestow you will tax benefits along the way.

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