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life insurance cash surrender questions

  • 1.  life insurance cash surrender questions

    Posted 12-10-2019 09:17 AM

    Hi all,

    I'm having a situation where my organization has "done it this way in the past" and the archives seem to disagree, and now I'm confused. I have two different scenarios that are happening and would appreciate guidance.

    1. Donor A has made us owner and beneficiary of a life insurance policy with the direction that we will cash it in immediately. There were no premiums paid to us. When we get the cash, we record that as a new gift and issue a tax receipt to Donor A, correct?

     

    1. Donor B many years ago (when our lax rules allowed this) made us owner and beneficiary of a $2M policy with no cash surrender value. We gave them recognition credit in our last campaign for the face value. They have been sending us $38.6K in premium payments every year (around $300K total). They'd like to now cash this in and we would receive $130K. There is no new gift here, correct? We would simply record as an asset. Do we issue a tax receipt?

     Many thanks!



    ------------------------------
    Jodie M. Ralston
    Executive Director
    Advancement Services
    T 315.443.1718 F 315.443.2874
    jralston@syr.edu
    640 Skytop Road, Room 241, Syracuse, NY 13244
    giving.syracuse.edu
    Syracuse University
    ------------------------------


  • 2.  RE: life insurance cash surrender questions

    Posted 12-10-2019 09:40 AM
    1. No.  The donor is making a gift-in-kind to you.  Depending on the value they may need an appraisal and file an 8283.  You record a GIK using the interpolated terminal reserve value which is provided by the life insurance company.
    2. "They" (the donor) has no say as to whether to cash the policy in as you own it.  They can certainly stop making premium payments if they want.  Your institution can then decide whether to cash in the policy or continue to make payments (the donors' age will dictate).  But if cashed in there is no additional gift.
    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 3.  RE: life insurance cash surrender questions

    Posted 12-10-2019 09:49 AM

    Thanks John. I'm very glad I asked!

     

    --Jodie

    Jodie M. Ralston
    Executive Director, Advancement Services
    Advancement and External Affairs

    T 315.443.1718  F 315.443.2874
    jralston@syr.edu

    Syracuse University Forever Orange The Campaign for Syracuse University

     






  • 4.  RE: life insurance cash surrender questions

    Posted 01-03-2020 10:11 AM

    In regards to below #1, I've received the form 712 which provides the interpolated terminal reserve value. There is an additional added adjustment on account of dividends to credit of policy. Is the GIK just the interpolated value or the total value including the dividend credit?

    Thanks!

     

    --Jodie

    Jodie M. Ralston
    Executive Director, Advancement Services
    Advancement and External Affairs

    T 315.443.1718  F 315.443.2874
    jralston@syr.edu

    Syracuse University Forever Orange The Campaign for Syracuse University

     






  • 5.  RE: life insurance cash surrender questions

    Posted 01-03-2020 10:16 AM
    It is the interpolated terminal reserve.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 6.  RE: life insurance cash surrender questions

    Posted 01-03-2020 10:18 AM

    Thank you.

     

    --Jodie

    Jodie M. Ralston
    Executive Director, Advancement Services
    Advancement and External Affairs

    T 315.443.1718  F 315.443.2874
    jralston@syr.edu

    Syracuse University Forever Orange The Campaign for Syracuse University