DID YOU KNOW... Indirect Use of Insurance for Wealth Replacement In recent years, probably the greatest increase in the use of life insurance in philanthropic plans has been to replace for heirs of an estate a value being given, by one means or another, to a charitable organization. In its simplest form, a significant outright charitable gift might reduce the projected value of inheritances for family members. However, depending on the age, health and marginal income tax rate of the donor(s), income tax savings from use of the charitable deduction can be enough to purchase life insurance with death benefits equal to the value of the gift. Example: Brother Smith makes a charitable gift of a building that has appreciated in value since he acquired it long ago. He knows that, among other benefits, this results in greater tax savings for his estate than if he had bequeathed the building to his children. (He might also have sold the building, but then he would have been forced to pay capital gains tax.) He then purchases life insurance for the benefit of his children, an expense that he would have paid anyway in taxes, had it not been for the charitable deduction he received for his gift to the Foundation. Instead of receiving a building, his children will receive cash from the insurance policy--and all of this happens outside the probate process. If your projected estate is taxable, ownership of life insurance by others (which also keeps death benefits out of the probated, taxable estate) might also be considered. It's even possible to make annual gifts of the premium amounts to the beneficiary/policy owner and utilize your gift tax exclusions.