Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client wants to make a gift of a recently-issued life policy to charity.  How may the client qualify for a charitable income tax deduction?

Answer: Revenue Code Section 170 governs the federal income tax deductibility of gifts to charity.  It provides that partial gifts of an interest in property do not qualify for a charitable income tax deduction.

There are several exceptions to that rule, including:

• Qualifying transfers made in trust (e.g.—a CRAT or CRUT)
• A remainder interest in a personal residence or farm
• A contribution of an undivided portion of the taxpayer’s entire interest in the property

While the taxpayer could own the life policy personally, and name the charity as beneficiary, Section 170 will not permit an income tax deduction for the value of the policy or for ongoing premiums under than configuration.

However, if the charity is both the owner and beneficiary of the contract, the taxpayer would generate a deduction for the gift of the policy and ongoing premiums.  Further, if the taxpayer decided to give away half of the policy—making the charity both a 50% owner and beneficiary—the taxpayer would be eligible for a charitable deduction of 50% of the policy.

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