A gift that designates Knox as owner and beneficiary of an existing policy that is not fully paid entitles the donor to claim a charitable income tax deduction in the amount of the policy's cash surrender value. The amount of the deduction cannot exceed the cost basis in the policy. The donor may also claim charitable income tax deductions in future years for the value of the annual cash contributions that will enable Knox to pay the remaining premiums.
As a general rule, a gift of an existing life insurance policy will qualify for the maximum charitable income tax deduction limitation of 50% of adjusted gross income, with the possibility of a five-year carryover for any excess.
Gift of a New Policy
Donors can also purchase a new life insurance policy and name the College as owner and beneficiary. This technique will enable the donor to make a sizable deferred gift to the College and pay for it over a number of years. As was the case with a gift of an existing policy on which premiums remain to be paid, the donor may claim a charitable income tax deduction in subsequent years for the value of the annual cash contributions that enable the College to pay the premiums on the new policy.