Create a Gift Strategy with Life Insurance that Benefits Both You and Pitt

Making a gift of life insurance to the University of Pittsburgh could lower your income tax burden
Making a gift of life insurance to the University of Pittsburgh could lower your income tax burden.

Naming Pitt as a beneficiary is by far the most popular way to use a life insurance policy to support the University. However, for those looking to also get an income tax deduction, there are several ingenious options that are nearly as simple.

“Using a life insurance policy to amplify your gift can be a smart way to make your impact at Pitt,” said Shannon Christof (JD ’05), Director of Planned Giving, University of Pittsburgh. “Depending on how you choose to structure your gift, there may be little or no change to your annual income, yet significant value to your estate or income tax bills and to the University.” 

Here are several easy-to-implement approaches:

Donate a fully paid policy to Pitt

Shannon Christof (JD ’05), Director of Planned Giving, University of Pittsburgh.
Shannon Christof (JD ’05), Director of Planned Giving, University of Pittsburgh

In addition to simply naming Pitt as beneficiary of an existing life insurance policy, you could also transfer full ownership of the policy to the University of Pittsburgh. Pitt will then receive the policy’s death benefit and you will receive a federal income tax deduction in the year of the gift based on the full value of the policy. This also removes the cash value of the policy from your estate, potentially saving federal estate taxes as well.

This option is especially appealing to individuals who purchased a policy with the intention of benefitting a family member who has predeceased them and those who own a policy purchased for them as a child, which has been fully funded for decades. By transforming an unused asset into an outright gift, donors can reap the tax benefits now while supporting the future of Pitt.

Create a new fully paid policy

Single-premium or “prepaid” life insurance policies are another easy-to-use financial planning tool available from many vendors. If Pitt is the sole beneficiary and owner of this type of policy, and it is fully transferred to University of Pittsburgh, it could be tax deductible. Individuals who are looking to leverage the impact of a one-time gift might find this to be an excellent option, especially if there is a need to offset a larger-than-normal single-year income. Many people like to take advantage of this option right before retirement.

Gift a policy and pay the premiums

“Depending on how you structure your gift, there may be little or no change to your annual income, yet significant value to your estate or income tax bills and to the University."
- Shannon Christof (JD ’05)

Individuals can either create a new policy or transfer an existing policy to the University of Pittsburgh and then arrange to make the annual premium payments through gifts to the University. The annual payments could be tax deductible in the year they are made. If the policy has been in effect for several years, the “surrender value” of the policy could also be tax deductible. Additionally, payments on long existing policies are often small compared to the substantial value of the policy.

Many who use life insurance in this manner like the idea of creating a legacy through an installment plan. The donor can use the proceeds of the policy to create an endowment in the name of the donor or another loved one. This sizeable gift can be made without diluting other investments and should have no negative estate tax ramifications for heirs.

Gift a policy’s dividends

Whole life policies that have been in effect for several years often pay the policyholder annual dividends that must be claimed as taxable income. Instead, the dividends could be assigned to the University of Pittsburgh; this assignment could be claimed as an income tax deduction.

Making a gift of life insurance to the University of Pittsburgh could lower your income tax burden
Making a gift of life insurance to the University of Pittsburgh could lower your income tax burden.

Some savvy donors increase the power of the gift by using the dividends to purchase a new policy of which Pitt is the irrevocable owner and beneficiary.

“Charitable giving, like investing, can be diversified,” said Shannon. “Coupling any of these life insurance options with charitable gift annuities, bequests, or other techniques can offer substantial financial benefits to a donor while maximizing their philanthropic impact for Pitt and its future.”

To learn more about planned giving, click here. When considering charitable giving, talk with your tax, legal, and/or financial advisors; University of Pittsburgh does not render these services

Follow this link to read more stories from this issue of the Chancellor's Circle Update.