Perhaps you would like to make a sizable contribution to the New Israel Fund now to help meet our current needs, but you don't want to reduce the estate you will pass to your family. The solution? Purchase life insurance.
"Sounds like a good idea," you say, "but then I'll have to pay the premiums on the policy." True enough, but depending on your age, health and top tax bracket, the income tax savings from your charitable gift may be enough to cover the premium cost.
Assuming your estate is taxable, dollar-for-dollar asset replacement isn't necessary. A similar amount of insurance can be enough to restore your family's after-tax inheritance. If you are married, a second-to-die policy can offer the most coverage per premium dollar.
Strategies to Avoid Tax
If you own the insurance policy, ultimately the proceeds will be included in your taxable estate. The remedy: If your sole heir to the policy value is a responsible adult, make him or her the policy owner and beneficiary. Then, give that individual a yearly amount adequate to pay the premium, utilizing your annual gift tax exclusion.
For multiple heirs or a larger gift, take advantage of an exceptional plan called a "wealth replacement trust" and name your spouse, children or other individuals as trust beneficiaries. The trust is the owner of the policy and eventually will receive and manage the proceeds. The trust is irrevocable, and if designed correctly, the insurance will be excluded from your taxable estate. You transfer enough money to the trust each year so that the trustee can pay the policy premiums.
To avoid any gift tax (or use of your estate and gift tax credit) on yearly gifts to the trust over the annual gift tax exclusion, the trust agreement must give your beneficiaries the temporary right each year to withdraw these funds. However, should your beneficiaries exercise this power, the insurance may lapse due to insufficient funds to pay the yearly premium. Together with you and your attorney, we can help design a plan that preserves your estate's value while fulfilling your desire to benefit our cause.
The information on this site does not constitute legal or tax advice. It is important that you consult with your financial or tax advisor before making any gifts, and certainly with your attorney before drafting any trusts or your will.
The New Israel Fund makes no representations, warranties or assurances as to the accuracy or completeness of the information provided herein, and are not liable for any damages related to your reliance thereon.
NIF is a charitable organization, registered in the United States, Canada and Great Britain. Contributions to NIF are tax deductible to the extent permitted by law in the United States.
Donors in Great Britain are advised to consult the appropriate legal or tax counsel.
At this time, only U.S. tax receipts are issued online.