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Using life insurance to provide for charitable beneficiaries

Many New Jersey residents want to incorporate charitable donations in their estate plans. The question may be how to do so without taking away from the inheritances of other heirs. Life insurance is one estate planning tool that may provide maximum benefit to a beneficiary that is a charity while preserving other assets for other heirs and beneficiaries.

Affordable life insurance premiums can result in a substantially larger gift to a charity than may have otherwise been possible. Further, when the individual dies and the benefits are paid to the charity, no taxes are due from either the organization or the estate. In fact, this method of charitable giving comes with certain tax advantages. The fair market value or the basis of the policy may be tax deductible. Further, the premiums paid on the policy may be considered charitable donations for income tax purposes.

A policy may also be transferred to an organization during life. This gives the charitable organization the option of cashing out the policy early if needed, or waiting until the passing of the insured to collect a larger portion of the policy. In the alternative, the beneficiaries of the life insurance policy can be a person's heirs, and gifts can be made directly either through a bequest or during life.

Several alternative methods of using life insurance policies to leave money to a charity exist. Determining which method will provide the most benefit for both heirs and charitable beneficiaries depends on a New Jersey resident's goals. Understanding all of the pros and cons of each option will help make this decision easier.

Source: Forbes, "Northwestern MutualVoice: Giving More With Life Insurance", , March 31, 2014

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