Life Insurance Options

Creating planned gifts with life insurance provides donors with a variety of methods to accomplish charitable goals while reducing income and estate taxes. The San Angelo Area Foundation's personnel are pleased to accompany you or consult with your own insurance professionals to recommend appropriate life insurance options.

Gift of an Existing or New Policy
Owners of current life insurance policies can contact their insurance providers and request forms to name the San Angelo Area Foundation as the policy's beneficiary. To establish an irrevocable gift, donors request change of ownership forms to name the Foundation as both the owner and the beneficiary. Donors can purchase a new policy to create a planned gift by the same process.

Donors ordinarily receive a charitable deduction equal to the lesser of the policy's surrender value or their basis in the policy (the total of premiums they have paid). If the policy is paid in full, the Foundation will keep the policy until it pays the death benefit. OR, if it is the donors' preference, the Foundation can surrender the policy and create an outright gift with the proceeds.

Should the policy depend upon additional premiums, the donors are expected to pay these. All future payments the donors make to keep the policy in tact are eligible charitable deductions. Donors should consult their accounting and insurance professional to determine whether to pay the premiums directly to the insurance company to make charitable donations to the San Angelo Area Foundation and have the Foundation pay the premiums.

Wealth Replacement Trusts
An extremely popular tool for donors with large estates, an irrevocable life insurance trust (ILIT) uses three steps to complete tax-wise gifts for charities and fine inheritances for children and other heirs.

1. Donors create a living trust outside their estates, and name their heirs as the trust beneficiaries. 
2. Donors then make gifts to their favorite charities and use the income tax savings from these charitable donations to fund the trust with life insurance on their lives.
3. At the death of the donors, the insurance trust distributes the insurance proceeds income and estate tax-free to the designated heirs. (These policies are often second-to-die arrangements in which the heirs receive the insurance proceeds after the death of both parents.)

Donors often double the impact of their estates with wealth replacement trusts. They are able to make a significant charitable gift while they are still alive without diminishing the inheritance their loved ones will ultimately receive.

Charitable Trusts and Gift Annuities
In some instances, donors can convert life insurance policies to charitable gifts which pay them an annual income stream. Donors request change of ownership forms from their insurer to transfer their insurance into a charitable gift annuity or a charitable unitrust. This transfer will earn them a charitable deduction, based upon a percentage of the policy's surrender value and their ages.

After the policy has been transferred, the trustee can cash in the policy and reinvest the funds for liquidity and diversification. The donors receive an income (normally 5% to 8%) for life or a term of years. After their deaths, the proceeds remaining in their life income plan are distributed to the charities the donors have designated.

Key Employee Insurance/Viatical Settlements
As business owners prepare for retirement, they often re-evaluate their insurance needs. Entrepreneurs who have started their own companies may have "key man" insurance, which they purchased to help their business in the event of their untimely deaths or to finance potential buy/sell agreements. As they retire from their businesses, this extra insurance may no longer be needed.

Viatical gifts utilize the equity in an asset without requiring the death of the insured. In recent years, financial institutions across the nation have agreed to purchase this insurance for a percentage of its face value. This transaction is called a viatical settlement.

Viatical settlements relieve the policy owners of premium payments and give them the opportunity to enjoy making a grand charitable statement while they are still alive. The value of the policy is determined in part by the owner's general health and anticipated life expectancy. Viatical settlements may often pay 25-85% of the policy's death benefit.

A business owner can gift his/her "key man" insurance to the San Angelo Area Foundation, who will then shop competitively for a viatical buyer.

To discuss planned giving options and possible benefits, receive sample gift calculations or arrange a confidential consultation, please contact President and CEO, Matt Lewis at 325-947-7071.