Wealth Replacement Life Insurance | Allstate

Wealth Replacement Life Insurance | Allstate


Let’s turn to one of the most popular, economical, and easily‐arranged forms of charitable giving… gifts of life insurance. With gifts of life insurance, the insured
policyowner simply transfers physical possession of the policy to the selected charity and
files an absolute assignment or transfer of ownership form with the insurance company. The company then sends a letter to the charity
showing the charity as sole owner of the policy. If the beneficiary designation has not been
changed to the charity prior to transferring ownership, the charity should name itself
beneficiary after the transfer. Here’s an example. Catherine owns a $300,000 policy on her life
with a cash value of $100,000. The coverage is no longer needed, and no further
premiums are due. Catherine can assure that her alma mater will
receive the full $300,000 death benefit at her death by making the school the policy’s
beneficiary. So in that sense, it’s a delayed gift. However, by transferring outright ownership
of the policy to her alma mater now… Catherine receives an immediate charitable
deduction equal to the lesser of her cost basis in the policy, or its fair market value,
which is provided by the issuing insurance company. Fair market value in this case is defined
as the interpolated terminal reserve plus unearned premiums. An equally effective use for life insurance
in conjunction with charitable giving is known as wealth replacement. Wealth replacement is an important planning
tool because it’s not unusual for potential donors to be concerned that giving money or
property to charity could undermine family planning goals by depriving family members of assets that the estate owner wants retained for their use. It’s a classic dilemma: family goals on
the one side, philanthropic objectives on the other. Fortunately, wealth replacement is a technique
that can help donors achieve both objectives… while providing significant income tax and estate
tax savings. A wealth replacement strategy combines:
• a charitable remainder trust, • a life insurance policy, and
• an irrevocable life insurance trust. Wealth Replacement is an effective method
of achieving both family and philanthropic financial goals. A wealth replacement strategy minimizes income
and estate taxes—and in some cases, capital gains taxes as well.

Leave a Reply

Your email address will not be published. Required fields are marked *