Life insurance can be a convenient way to make a substantial gift to your Sutter Health affiliate. There are several ways you can use life insurance as the basis for a charitable gift.

Making the Charity a Beneficiary of your Life Insurance Policy

You may wish to make your Sutter Health affiliate the beneficiary (or contingent beneficiary) of your life insurance policy, as a way to make a sizable future gift. You retain lifetime ownership of the policy, keeping the right to cash it in, borrow against it, and change the beneficiary. A gift like this is treated much like a bequest made through your will. Because you retain the ownership of the asset (your life insurance policy), you will not receive an income tax charitable deduction for this future gift or for your premium payments during your lifetime. The policy's proceeds will be included in your gross estate, and your estate can take an estate tax charitable deduction.

Making a Gift of Your Policy

You may wish to transfer ownership of your life insurance policy to a Sutter Health affiliate organization, or purchase a new policy and list your Sutter Health affiliate as owner and beneficiary. If you make the affiliate the owner and beneficiary of a policy, you are entitled to certain tax advantages.

How it Works
Now that all their children were out of the house, the Walkers decided to take a fresh look at their finances, including their life insurance policies. The couple’s financial advisor explained that some of their insurance wasn’t necessary, now that their children were grown, so the Walkers decided to donate a fully paid policy to their local Sutter Health affiliate hospital foundation. The couple’s donation also entitled them to a charitable deduction equal to the lessor of the premiums they paid over the life of the policy or the cost of a comparable replacement policy if purchased today.

Their parents’ donation also inspired the Walker’s children. One even purchased a small whole life policy and designated the Sutter-affiliated foundation as the owner and irrevocable beneficiary. As a result, the annual premiums are a charitable deduction.

Wealth Replacement Using Life Insurance

If you’re concerned that a charitable donation to your Sutter affiliated organization will significantly decrease the inheritance you planned to leave to your children, wealth replacement using life insurance may be a creative option.

This plan works by using life insurance to replace the value of the assets you donated to a Sutter Health affiliate via a charitable remainder trust.

Funds you donate to your Sutter Health affiliate through a charitable remainder trust are irrevocable gifts and will not be available to you or your heirs. But you can use the tax savings and/or additional income generated by the trust to purchase life insurance.


How it Works
John Abbott wants to donate a gift that will ultimately be used to help fund ongoing cancer related services and programs at the Sutter Health affiliate hospital foundation he has supported for years. He also wants to protect his children’s inheritance. So, the 67-year-old creates a 6 percent charitable remainder unitrust for $500,000, which generates him a tax savings of $66,535. John then purchases a $300,000 whole life insurance policy that will replace what his children would have inherited after estate taxes. His annual premium for the life insurance policy is $13,500. He uses his tax savings from the charitable remainder unitrust to pay for the first five years of premiums. The increased income he receives from his trust provide for the subsequent premium payments.

Creating a Life Insurance Trust

You may want to set up an Irrevocable Life Insurance Trust (ILIT). An ILIT removes the life insurance from your estate to providie other benefits. For example, upon a person’s death, the proceeds of the life insurance policy may remain in the trust to provide income for the surviving spouse, but stays outside of the spouse's estate for estate tax purposes. Or, the trust could be used to distribute proceeds to children of a previous marriage. Although ILITs can be expensive and more complicated than owning life insurance directly, they may be an attractive option in certain situations.

As with all matters concerning estate planning, please consult your estate and tax specialists.

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Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. The content in this Planned Giving section has been developed for Sutter Health by Future Focus. Please report any problems to the Webmaster Revised: June 23, 2006 11:53