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GIFTS OF AND USING LIFE INSURANCE• Power to revoke an assignment• Power to pledge the policy for a loan• Power to obtain from the insurer a loan against the surrender value of thepolicy 15• Reversionary interest in the policy or its proceeds, whether arising by theexpress terms of the policy or other instrument or by operation of law, butonly if the value of the reversionary interest immediately before the deathof the decedent exceeded 5 percent of the value of the policy 16If the individual has not changed his or her mind on the subject prior todeath, the charitable organization will receive the death benefit. This death benefitwill be included in the estate for estate tax calculation purposes, but theestate will receive an estate tax charitable deduction for gifts to charitable organizations.Therefore, the death benefit will not create any estate tax burden.It is not enough, for an income tax charitable deduction, simply to cause acharitable organization to be named as the (or a) beneficiary of a life insurancepolicy. Full ownership rights in the policy must be conveyed for a charitablededuction to be allowed.If one gives an amount equal to a premium payment to a charitable organizationand authorizes the charity to purchase an insurance policy on the donor’slife, the value of the gift is greatly multiplied. The charitable organization canuse the annual gifts to purchase an insurance policy having a face value that isgreater than the annual amounts combined. In this instance, because the charitableorganization is the policy owner and the beneficiary, and the donor is merelythe insured, the annual gift is a deductible charitable contribution.From the charitable organization’s point of view, two transactions occureach year. First, premium dollars plus investment earnings are added to the cashvalue. Second, the cost of insurance, expense charges, and administrativecharges are deducted from the cash value. The net cash value is available to thecharitable organization if there is a current need for cash. Borrowing or withdrawingcash value will, however, reduce the death benefit and require additionalfuture premium payments to keep the policy in force.This concept can also be effectively utilized when a donor wishes to make asingle large contribution. If the amount given is used to purchase life insurance,a much greater gift is likely to result.The foregoing discussion focused on the direct use of life insurance in thecontext of charitable giving. One or more donors make a substantial gift to charity(via the insurance death benefit) with relatively small incremental gifts. Thecharity benefits in that it can use the policy cash values while the donor is alive,although the major portion of the gift is received at the death of the donor.There are, however, instances of the indirect use of life insurance in the charitablegiving setting. An individual may have a valuable parcel of property thatproduces very little income and is not important to his or her financial welfare;at the same time, sale of the property might generate a significant capital gains15 These seven examples are listed in Reg. § 20.2042-1(c)(2).16 Reg. § 20.2042-1(c)(3). 532