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When it comes to donating to favorite charities, Americans do so by millions of dollars. From everyday donations to those where they leave part, if not all, of their estate to the charity of their choice, people are looking for ways to help each other. So, can I donate my life insurance policy to a nonprofit or charitable organization? Let’s find out what possible options are available for you.

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However, many people do not have in their possession as much as they want to give, so they look for alternate means of giving. Many consider whether they can donate life insurance benefits to their favorite charity organization. This may be an unusual move for many, and some might question if it is even possible, given the rules governing such policies. You can only donate life insurance death benefits to the charity when you have a permanent life policy; read here for more about this type of policy.

Can you Name Charities as Beneficiaries?

The answer is yes; donating a life insurance policy to charity is actually an everyday event. This is because a life insurance policy represents a relatively minimal investment that can be made by the policyholder, which can reap large benefits upon the fulfillment of the insurance.

Some procedures must be followed to fulfill your wishes, so you must follow the right course of action so that the charity of your choice benefits from the policy. One way to create charitable riders that add up to 2% to the face value of the policy while eliminating the need to create or pay for separate gift trusts until the policyholder passes away.

The Procedure for Donating Your Life Insurance:

Why Donate to Charity: You should donate to charities beyond the obvious one of giving to the one because it supports a cause you believe in. Another good reason is that while it cannot be used as a direct tax deduction, it can be subtracted from your estate in terms of overall value, lowering the estate tax.

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How to Choose the Right Organization: You must choose a charity that fits with the cause you want to support and has the legal structure to handle donations from life insurance policies within it. The charity must also qualify under IRS code 501(c)(3).

Transferring Ownership vs. Retaining Ownership: Donating a life policy to a nonprofit organization has two ways. You can go either way, depending on how much control you want over the policy after the donation. This can be a difficult decision because transferring ownership separates it from your estate, but you also lose all control over it. Retaining ownership means that the policy is still part of your estate in terms of value and may be subject to the federal estate tax if it is over the current limit.

Taxable Estates & Other Tax Obligations: Since the donation comes from the life insurance policy and not your estate, it is not subject to the same type of estate tax. However, it can be used to lower the overall value of your estate in terms of what is taxable. This means that those who inherit your estate may pay fewer estate taxes.

Donating life insurance benefits to a qualified charitable organization provides a means of delivering a sizable donation without straining your estate if you should pass away unexpectedly. When choosing the right organization, give priority to your local charity and your interests, such as some people want to contribute to health, and some want to in providing food to poor people.

Some wish to donate to churches, mosques, or other religious worship places. You can contact the authority and talk with them for further information if they are ready to receive it.

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Meet Aaron H., a senior life insurance agent from California with 15+ years of experience. With a major in finance, excellent analytical and communication skills, and a passion for helping clients find personalized solutions, Aaron is a trusted advisor in the industry. He stays up-to-date on the latest trends and developments by attending webinars and workshops, reading industry blogs, and writing informative blog posts on this website. Aaron also has a keen understanding of SEO and online marketing, which he uses to help his clients reach a wider audience and get the coverage they need. He cherishes spending quality time with his wife, two children, and elder parents.