If you're interested in getting life insurance, you're probably doing this to deal with the loved ones who would remain behind within the unfortunate event of the passing. Your spouse or partner, for instance, along with any dependents. But there are more beloved people you might like to consider, too – those whose life and/or happiness is supported by a nonprofit organization or charity.
If there is a charity that has meant a great deal to you over the years – or you merely desire to be generous together with your end-of-life planning – you're not alone. Based on Giving USA, Americans gave a lot more than $427 billion (with a “b”) to nonprofits in 2021 (the most recent year that details are available). However, the amount of that came from after-life planning is not specified. (One expert told us it is a relatively small portion, because tax benefits tend to favor the living, and because a lot of people neglect to make an estate plan.)
For those attempting to incorporate a charity in their end-of-life planning, there are some ideas to bear in mind, in addition to some benefits and drawbacks to think about. We spoken with Patrick Hicks, estate planning attorney at Trust & Will (whose online will services are included at no cost included in the Haven Life Plus rider, contained in the Haven Term life policy. Trust & Will also can be obtained independently from the Haven Life Plus rider, like a paid service). Hicks told us what you need to learn about giving a life insurance policy to charity.
Identify the reasons you need to support
A lot of us occasionally think, “Hey, I ought to really support [my kid's school/my local hospital/my favorite cause].” However for better and for worse, the amount of causes worth our time, attention and resources is overwhelming. Zero in on in which you really want your hard earned money to visit, and who can use it most.
“It sounds simple,” Hicks says. “But it’s vital that you be sure you’ve identified the business you actually wish to support. There are many charities doing wonderful things and lots of of these have much the same names. Some charities have regional offices or chapters, which means you could decide to offer the national organization as a whole or support the local chapter directly.” Quite simply, decide whether you would like your money to support an organization's broader mission, nationally or perhaps internationally, or you want your dollars to make their impact felt nearer to home.
And while it might seem obvious, factors to consider the business is legit. “Make sure to get the organization’s full legal name (which often varies from their commonly used names) and their EIN or tax identification number,” Hicks says. “Most charities include this online, but you may also check aggregator sites, like Charity Navigator.”
Speaking of: Organizations like Charity Navigator also grade nonprofits on how efficiently they spend their (read: your) money. It certainly is worth checking their site to make sure you're getting the most nonprofit bang for the donated bucks.
Consider giving a part of your estate plan
In terms of naming a company like a term life beneficiary, it truly is as simple as writing the organization's name in your documentation, and when you die throughout the coverage term of the policy, the policy is going to be paid to your beneficiary/ies as specified by your policy.
Of course, you will have the option to mention multiple beneficiaries and contingent beneficiaries, so do not worry that this is an all-or-nothing proposition.
Keep in your mind that there’s no federal or state tax benefit for naming a charity because the beneficiary of the term life insurance policy. Nor are you able to write off your premium payments being an income tax deduction.
However, if you donate the proceeds of a permanent life insurance coverage, which provides coverage for your whole life, you have more tax strategies available to you. Consult a financial professional or tax advisor before giving a lasting policy to some charity.
“Most charitable organizations are more than happy to assist with this process – their websites usually have Giving or Donations pages that provide helpful info and even sample gift language,” Hicks says. “Many organizations also have planned-giving experts who might help discuss various giving choices to help in making gift that's appropriate for your situation, which will create a lasting impact for any result in support.”
Reach to your preferred charities in advance
Contacting a charity likewise helps ensure the gift is planned correctly, like listing the correct legal name and EIN. This helps for those who have specific uses you would like the donation to support.
“If you’re giving a very large gift or maybe you’re giving specific assets, it might be smart to contact the charity first,” Hicks says. “That might help make sure the process is seamless and head off any unexpected complications.
Lastly, it might make things easier in your loved ones afterwards. “Some people do hesitate to make contact with the charity because they do not wish to draw attention or don't wish to be committed to something that might change in the future,” Hicks says. “Charities know that situations change, and also the $50,000 you planned to give might become $5,000. Working with the charity can make those changes easier by making sure your gift planning is suitable for you at all stages of life.”
Make the giving decision that works perfect for you
Hicks lists a few reasons why including a nonprofit inside your estate planning can be a good idea.
“Charitable organizations can greatly increase the impact of a donation,” he says. “These organizations are positioned up to leverage all their donors, partners, and service providers to maximize their impact. For example, it could set you back $5 to provide one meal to someone in need of assistance, but a charity already operating for the reason that sphere might be able to provide twenty meals for that same $5.”
There's also your life and legacy to consider. “You've spent your entire life impacting the planet,” he states. “That does not have to stop at your death. Leaving bequests helps to ensure that your impact will continue.”
In sum, naming a nonprofit organization as a life insurance coverage beneficiary is one more method in which end-of-life planning may bring peace of mind – not just for you personally, however for your family, too.