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Leveraging Life Insurance for Impact: Charitable Giving Strategies for Financial Advisors

This Financial Experts Network webinar featured Jason Watt (Senior Manager, Charitable Strategies Group, DAF Giving 360), who walked through when life insurance can be a high-impact charitable-planning asset, how charities evaluate these gifts, and what documentation/tax rules typically drive implementation choices.

Why life insurance can be compelling in charitable planning

Jason framed life insurance as a “legacy multiplier” that can create a larger eventual charitable gift than a donor can comfortably fund during life—especially when cash flow is constrained but the donor wants a significant endowment/scholarship/mission gift at death. He emphasized flexibility (choice of ownership, beneficiary designations, premium timing/structure) and planning leverage (estate-tax removal when structured correctly, plus possible income-tax deductions depending on the strategy).

A recurring practical theme: start with the charity early. Many planned gifts fail late in the process because the charity’s gift acceptance policy, administrative capacity, or minimum-gift rules don’t match the donor’s proposal.

How charities commonly underwrite/accept an insurance gift (practical due diligence)

Jason described what charities frequently request before accepting an existing policy:

• In-force illustration (to evaluate policy “health,” projections, and any loan balance)
• Copy of the policy (ownership/beneficiary structure, riders, premium schedule)
• Confirmation of loan status (often visible in the illustration)
• Clarification of the donor’s intent:
  • Is the goal immediate liquidation for current use?
  • Hold until death for a larger future gift?
  • Convert to reduced paid-up (no ongoing premiums, lower death benefit)?

He noted term insurance is often not accepted by many charities because it can lapse with no value and can create administrative burden (though acceptance is charity-specific).

Jason discussed the common documentation path for gifting an existing policy to charity and why the paperwork can feel heavier than donors expect:

1) Deduction amount for gifting an existing policy

• Jason’s rule of thumb: the charitable deduction for donating a life insurance policy is generally the lesser of the policy’s cost basis or its fair market value (people often shorthand this as “cash value,” but FMV is the technical concept).
• This “lesser of basis or FMV” limitation is consistent with the general rule that donors may need to reduce FMV deductions for certain property types under Internal Revenue Code §170.
  • Practical implication: in many real cases, cost basis is lower than FMV, so basis drives the deductible amount.

2) AGI limits and carryforward

• Jason referenced a 50% of AGI limitation in this context. The key fact-check nuance: the percentage limitation depends on (a) the charity type and (b) whether the contribution is cash vs. noncash property and how the property is treated.
• Excess charitable deductions are generally carried forward up to 5 additional years (so you effectively have up to 6 tax years including the current year to use the deduction).

3) Qualified appraisal and Form 8283

• If the claimed deduction for a noncash gift is more than $5,000, donors typically must obtain a qualified appraisal and complete the appropriate section of Form 8283; the donee organization signs the relevant portion of Form 8283.
• Jason addressed a frequent question: “Why do I need an appraisal if the insurer can provide values?” He noted insurers can provide valuation documentation (often discussed as Form 712 in estate/gift contexts), but the IRS appraisal requirement can still apply for substantiation of certain noncash charitable contributions.

4) Policy loans

• Jason flagged that policy loans can reduce the practical value/benefit of the gift and may affect deduction mechanics. He also cautioned that in some situations, a loan in excess of cost basis can create income-recognition complications—so donors should coordinate with tax counsel before assignment.

Common planning structures and where life insurance fits

Jason highlighted several structures where life insurance shows up repeatedly:

A) Straight assignment of an existing policy to charity

• Often attractive when the donor has an unneeded or underperforming policy, or family circumstances changed (e.g., divorce, death, children grown, prior protection need gone).
• A key benefit he emphasized: if the charity (a tax-exempt entity) surrenders the policy, it generally avoids the income tax that an individual donor would incur on gain.

B) Donor Advised Funds (DAFs) as a “simplifier”

• For donors who want to benefit multiple charities, Jason suggested that naming a DAF provider as the sole beneficiary can streamline administration: one beneficiary claim is processed, then grants can be recommended over time to multiple end charities.
• He also clarified a common misconception: a DAF is sometimes described like a “charitable checkbook,” but the donor is an advisor; the DAF sponsor has legal control (while generally honoring donor recommendations within the rules).

C) Wealth replacement planning using CRTs + life insurance

• He described the classic pairing:
  • A Charitable Remainder Trust (CRT) can sell appreciated assets inside the trust (tax-exempt trust structure), generate an income stream, and leave a remainder to charity.
  • Separately, donors can use CRT cash flow to help fund a life insurance strategy intended to replace the value going to charity for heirs (often implemented with an irrevocable life insurance trust in broader planning).
• Practical note he added: CRTs rarely hold life insurance as an investment because of valuation/admin complexity and payout requirements, but CRT cash flow can be used to support insurance outside the CRT.

The webinar’s main “tax math” example (what it was trying to show)

Jason walked through a comparison intended to illustrate why assigning a policy to charity can be more tax-efficient than surrendering it personally and donating the cash:

• Example inputs: $200,000 cost basis, $500,000 surrender value, 24% tax rate
• Option 1: Donor surrenders → recognizes taxable gain (surrender value minus basis) → pays tax → donates remaining cash.
• Option 2: Donor assigns policy to charity → charity surrenders tax-free → charity receives full surrender value; donor’s deduction is typically limited (often basis-driven), but the overall outcome can yield more dollars to charity and potentially better combined tax efficiency.

Best-practice implementation guidance (what advisors can actually do)

Jason’s practical checklist, expanded from the discussion:

1. Start with gift acceptance: confirm the charity will accept permanent insurance, minimum size, and preferred admin structure.
2. Clarify the “why”: legacy at death vs. immediate liquidation vs. reduced paid-up.
3. Coordinate stakeholders early: donor, advisor, estate attorney, tax advisor, insurance professional, and the charity’s gift officer.
4. Design premiums with an endpoint: he suggested aiming for a structure that can be paid-up by ~age 75 when feasible (reduces admin risk for the charity and lapse risk).
5. Be documentation-forward: plan for appraisal timing, Form 8283 execution, donor acknowledgment letters, and valuation support.

Audience Q&A additions 

What charities actually want to see: Jason reiterated the “big two” documents—in-force illustration + policy copy—as the starting point.

• Single premium life insurance: he noted insurability can be a gating factor for a charity-owned single premium design. A common workaround he discussed: donor initially owns the policy to establish insurability, then later assigns it to charity and funds it to reduce premium/lapse friction.
• Asset-location viewpoint: he suggested aligning assets with recipients: charities often do well receiving tax-inefficient assets (e.g., traditional IRA bequests) because the charity is tax-exempt, while heirs often do well receiving life insurance death benefits (income-tax-free to beneficiaries, though estate tax may still be relevant depending on ownership).

Sources 

External fact-check URLs 

• IRS Publication 526 (Charitable Contributions): https://www.irs.gov/publications/p526
• IRS Publication 561 (Determining the Value of Donated Property): https://www.irs.gov/publications/p561
• IRS guidance page on substantiating noncash contributions (includes Form 8283 thresholds/signature requirements): https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-organizations-substantiating-noncash-contributions
• IRS Instructions for Form 8283: https://www.irs.gov/instructions/i8283
• IRS “About Form 712, Life Insurance Statement” (context for insurer-provided life insurance value statements):  https://www.irs.gov/forms-pubs/about-form-712
• Internal Revenue Code §170 (Cornell Law): https://www.law.cornell.edu/uscode/text/26/170