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Gifts of Life Insurance

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Glossary

Definition
A donor may create a charitable gift by naming Clarkson owner and/or beneficiary on any of a number of commercially available term, whole or universal life insurance products. The policy may be held in force by the donor or Clarkson until the insured’s death or it may be terminated by Clarkson and the cash proceeds used by the University.

Further Information
Most often, a donor will use an existing, paid up policy to create a life insurance gift. It may be a policy from childhood, or a policy to cover college expenses for the kids, or to protect a developing business interest. It may simply be a policy that is no longer needed due to evolving personal circumstances.

In other circumstances a donor may use an existing policy that has premium payments remaining for some period of time into the future. The donor elects to continue making premium payments on the policy. In some cases, a donor may create a new policy designed to meet her/his philanthropic and financial planning goals and make premium payments on the policy. Sometimes donors elect to use a “second-to-die” policy to create a gift plan.

Yet another option for using life insurance to plan a gift is to name Clarkson on a policy from an employer or a group life situation. The University may remain named on the policy as long as the policy is in force.

In general, a donor may name Clarkson owner and/or beneficiary of a life insurance policy. Naming Clarkson beneficiary of a policy is a revocable decision. Depending on the insurance product, the University may be named as a primary, partial or contingent beneficiary. Naming Clarkson owner and beneficiary is an irrevocable decision, and the University is usually named as the sole beneficiary.

Life insurance may be given as an outright or a deferred gift. As an outright gift, the policy owner names Clarkson owner of the policy, and then Clarkson terminates the policy (in most cases the donor should not cash-in the policy) and uses the proceeds (the cash value of the policy) as the donor stipulates. As a deferred gift, the owner names Clarkson owner and/or beneficiary and the policy remains in force until the insured’s death, at which time the death benefit passes to Clarkson for use as documented by the donor.

Depending on your circumstances, your gift of life insurance may count in the Evolution to Excellence fundraising campaign, in your next anniversary reunion, and towards Roundtable annual recognition. Contact the Annie Clarkson Society for help related to your unique circumstances.

In a related use of life insurance, a donor may make or plan a gift to Clarkson other than life insurance, and then create a life insurance policy to “replace” for heirs that wealth that was given to Clarkson. In this instance, other heirs are named beneficiaries of a policy that is often placed into a “wealth replacement trust.” See Wealth Replacement.

Tax and Financial Implications
Naming Clarkson beneficiary of a policy is a revocable decision, so no current income tax charitable deduction is allowed. If Clarkson is named the owner and beneficiary of a policy, the donor may be eligible for an income tax charitable deduction equal to roughly the cash value of the policy. If structured correctly, the donor may also be able to claim an annual income tax charitable deduction for future premium payments paid on a policy where Clarkson is named the owner.

To claim an income tax charitable deduction, however, it is important to understand that Clarkson must have all rights of ownership over the policy, including the right to hold or cash in the policy, and the right to make or terminate premium payments. Otherwise, the government does not allow the donor to claim a charitable deduction.

Gifts of life insurance over $5,000 must have a “qualified, independent appraisal” if the donor wishes to declare an income tax charitable deduction.

Special attention should be paid to a policy with outstanding loans when Clarkson is named the owner/beneficiary to avoid tax and gift complications.

At such time as a policy matures, the policy value is removed from the value of the estate. Sometimes a donor prefers a life insurance gift because the proceeds from the policy will pass outside of the (public) probate process directly from the insurance company to Clarkson.

Process to Create
While every gift situation is unique, there are several steps that may be outlined to help clarify the process.

  1. You decide. Philanthropy is a lifelong process. At some point you may wish to express your thanks to Clarkson and help ensure the Clarkson experience, and decide that a gift of life insurance may work for you.
  2. We talk. You may wish to speak with the Annie Clarkson Society to make sure that your wishes can be accomplished at Clarkson, and to create the necessary documentation so that those who come after us can fulfill your intentions.
  3. You talk. You may wish to meet with your financial and legal advisors to discuss options and confirm that a gift of life insurance is right for you. If so, you request the appropriate legal documents to create the gift plan.
  4. You sign. You make a final review and sign the appropriate legal documents, creating or modifying your gift plan.
  5. You relax. You have just connected yourself with the past and the future as you continue the good work of those who came before you and prepare the way for those who will come after you. Enjoy the moment!

What to Expect After Your Plan is Created
The creation of your plan is the start of a new relationship with Clarkson:
  • If you are a new member of the Annie Clarkson Society, you will receive letters of welcome.
  • As an Annie Clarkson Society member, you will receive the Society newsletters and annual report each year.

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This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 2/2014)