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GIFTS OF AND USING LIFE INSURANCEcase is authority for the thought that a charity’s interest in receiving the proceedsof an insurance policy is not automatically a basis for a finding that thereis no insurable interest. As noted, the court found that this conflict of interest canbe cured through consent. Obviously, a contributor of an insurance policy to acharity has consented to being an insured when the charity is the beneficiary.Thus, it would seem that if an ex-spouse can have an insurable interest in the lifeof the other ex-spouse, when the beneficiary ex-spouse also has an economicinterest in the demise of the other ex-spouse (that is, when the potential decedentex-spouse is “worth more dead than alive”), a charitable organization thatis an owner/beneficiary of an insurance policy by gift would have an insurableinterest as well.§ 17.5 UNRELATED DEBT-FINANCED INCOMECONSIDERATIONSThe investment income resulting from life insurance gift programs has been heldto be unrelated business income. 39 A court held that loans against the accumulatedcash value of life insurance policies constituted indebtedness; therefore, theincome derived from reinvestment of the proceeds in marketable securities wastreated as income from debt-financed property. 40 The court decided, on the basisof court opinions finding that insurance policy loans are generally regarded as aform of indebtedness and that this type of borrowing has been held sufficient tosupport a federal income tax interest deduction, that the withdrawals were aform of indebtedness for purposes of the debt-financed income rules.The court placed great emphasis on the legislative history of the revision ofthe federal tax law, which disallows a deduction for certain insurance loans. 41The court wrote, however, that because Congress thus intended to preserve theinterest deduction for payments on other types of insurance loans, Congressimplicitly considers loans against the accumulated cash value of life insurancepolicies as indebtedness. The court noted that, at the time, federal tax law 42allowed a deduction for all interest paid or accrued on indebtedness. Consequently,the court reasoned that if a life insurance loan involves an indebtednessin one tax context, it must be an indebtedness in all tax contexts, including therules for taxation of unrelated debt-financed income.Universal life insurance offers (or appears to offer) a solution to this problem.As noted above, cash value may be withdrawn from universal life policieswithout creating a policy loan. Thus, a charitable organization could withdrawcash value, reinvest it, and avoid the problem of having the property considereddebt-financed property that generates unrelated business income.§ 17.6 CHARITABLE SPLIT-DOLLAR INSURANCE PLANSA recent addition to the ways in which charitable giving and life insurance interrelate,albeit adversely, is the charitable split-dollar insurance plan.39 Mose & Garrison Siskin Mem’l Found., Inc. v. United States, 790 F.2d 480 (6th Cir. 1986).40 IRC § 514. See Tax-Exempt Organizations ch. 29.41 IRC § 264.42 IRC § 163(a). 538