Tax receipt for life insurance premium payment

Catherine Han

One of donor pays life insurance premium to insurance company year by year, After donor pass away,  a big amount will give to our charity. Now donor asks to provide tax receipt for premium payment. Not sure if anyone has dealt with this kind of case. 


I have several questions:


1) Is it legal?

2) How to enter in RE? We don't have planned gift module.

3) How to balance with Finance Department? We won't receive premium, donor pays to insurance company.


Any ideas are helpful.


Thanks,


Catherine


 

JoAnn Strommen

Catherine, I'm not a tax expert in any way.  If I were you I would ask your organization's tax auditors for advice on this. 


First as you said you are not receiving the funds at this time.  Doesn't the tax benefit happen when the person passes? 

Per IRS Publication 526, you can't deduct anything that you, your family or any person you specify benefit.


I would definitely research this thoroughly before providing any type of tax receipt. You don't want to get this wrong.

Catherine Han

Thank for your quick response. You are right, I will ask our auditor for sure. Thank you. How do you normally enter premium in RE? We don't have plan gift module.


Thanks.


Catherine

JoAnn Strommen

If premiums are paid to insurance company why do they need to be recorded by your org in any way? Maybe I missed something.


Previous org, RE used only to record donations. Payments like that if we had them would have gone directly to finance.  This org, we do record some odd things with $0 receipt amount. I'd check with finance? Are you integrated with FE? Do you post gifts to a GL? Is "other" pay method used for something else? Perhaps that.  Do you have prospect module. You can enter planned gifts there w/o the module.


Previous org (pre NXT) we recorded bequests/insurance type promises with a series of attributes specifying type and amounts.


Hard to say. 

Catherine Han

Donor needs tax receipt for paid premium. CRA mentioned to me that it's legal.

Daniel R. Snyder

Catherine Han‍, are you in Canada? I noticed you mentioned the CRA in your last post and if that is the case the information I provide may not be accurate as it is somewhat based on US, IRS rules.


According to CASE guidelines, if the donor has named your institution both the owner and irrevocable beneficiary of the policy and the policy is not fully paid up you can count premium payments as tax-deductible contributions (IRS).


We also have dealt with this exact issue and what we do is each January, we call up the insurance company and ask for a statement of premium payments made by our donor to be faxed to our office. We are able to get this information because we are the owner of this policy. Then we enter the gift into RE with the git type of other and subtype of life insurance. This is a situation we worked out directly with our finance office and admittedly I am not aware of how they record this exactly.


In a perfect world, as CASE suggests, the donor would make a gift directly to your organization and then you could pay the premium payments, but for certain situations that is not the case.


Hope this helps.

Catherine Han

Perfect Dan. Our organization locate in Canada. Donor pays premium to insurance company annual. Thank you so much!