FAQ: Can I donate gifts of life insurance policies to Duke University?
Several years ago, we had the pleasure of working with a Duke alumnus who wanted to donate a life insurance policy to Duke. We asked him how he came up with the idea to donate the policy as opposed to other assets he had on hand. He answered, “It was like looking in my closet and giving away the clothes I no longer wear. I looked at my assets and realized I didn’t need that policy anymore.”
The Duke University Office of Gift Planning receives several calls each year from donors who have come to the same realization: they have a life insurance policy that they no longer need and wonder whether they can donate it as a gift. They often ask a series of questions about how that gift “would work,” captured here in these frequently asked questions:
1. Does Duke accept gifts of life insurance policies?
Yes, Duke accepts gifts of life insurance policies that meet certain criteria. Generally speaking, if the policy is fully “paid-up” (meaning that further premiums will not be due on the policy regardless of investment or market performance), then Duke will very likely accept the policy.Duke may also accept a policy that is not fully paid-up if the donor pledges to make gifts to Duke in the amount of premiums due, and if the policy meets specific parameters regarding the death benefit and the premium payment schedule. Even if your policy does not meet these parameters, Duke will consider accepting the policy on a case-by-case basis.
2. What type of paperwork will I need to donate a life insurance policy?
If you are considering whether to donate a life insurance policy, you should request a current “in force ledger” from your life insurance agent or company. This document will show the current cash value of the policy as well as projected values based on various assumptions. You might also ask your insurance company for your “tax basis” in the policy, which will play a large role in determining the tax deduction available for transferring the policy to Duke as a gift (see the next item below).
3. Will I receive a charitable tax deduction if I donate a life insurance policy? What are the tax implications?
Generally speaking, donating a life insurance policy to a public charity like Duke University entitles the donor to a charitable income tax deduction. The amount of that deduction will be equal to the lesser of the policy’s value and the donor’s tax basis in the policy.
a. What is the policy’s value?
If the policy is fully paid-up, then its value is equal to its replacement cost. If the policy is not fully paid-up, then its value is equal to the “interpolated terminal reserve” plus any unearned premium that has built up. If you intend on claiming an income tax deduction for a gift of life insurance in excess of $5,000 you will need to get a “qualified appraisal” as defined by the IRS to substantiate the amount that you deduct.
b. What is the tax basis?
The donor’s tax basis in a policy generally equals total premiums paid less any dividends received and non-taxable withdrawals.
4. What will Duke do with the policy once it receives it?
One of the great things about donating a life insurance policy to Duke is that we can often cash in the policy so that your gift can have an impact at the university right away. We usually do this by canceling the policy — “surrendering” it to the insurance company — and receiving the cash value in return. We can then invest that cash value wherever the donor directs. For example, the cash value can be used to establish a scholarship fund to provide need-based financial aid to Duke students on campus today!
In some cases, Duke will choose not to surrender the policy but, instead, will hold it for the life of the insured person. Once that person has passed away, Duke will receive the “death benefit” of the policy. Whether we surrender or hold the policy is a case-by-case determination.
5. If I don’t want to give a life insurance policy to Duke now, can I just name Duke to receive the death benefit after I pass away?
Absolutely! In fact, this is the most common way that Duke benefits from life insurance gifts.To support Duke in this way, simply contact your insurance agent to add the university as a “beneficiary” of the policy. On the life insurance beneficiary designation form, please refer to Duke simply as “Duke University” and indicate our Employer Identification Number (EIN) or “Tax ID Number”: 56-0532129.
Please be sure to let our team know that you’ve named Duke as a beneficiary of your policy so that we have clear instructions on file regarding how you’d like us to use the policy proceeds.
If you simply name Duke as a beneficiary of a policy, you can revise the beneficiary at a later time and, if you wish, remove Duke as beneficiary. While this provides flexibility to you, it also means that you will not receive an income tax deduction for this gift; however, your estate may receive an estate tax deduction that may offset possible federal estate taxes.Many of our alumni have found this to be an easy way to have a significant impact at Duke.
6. What impact can a gift of a life insurance policy have on campus?
You name it! Your life insurance gift can support financial aid for students, research of a specific disease, or one of campus’s many special places such as the libraries or the Sarah P. Duke Gardens. Depending on the policy’s cash value or death benefit, you may be able to direct the policy to establish a permanent endowment fund which will support the part of Duke most important to you, in your name and in perpetuity.
Please contact us if you would like to learn more or if you would like to discuss a gift of life insurance. We would be happy to talk with you and your advisors about what may be the best choice for you.
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