First, John can make the charity the beneficiary of part of his $500,000 life insurance policy. Since John would continue to be the owner of the policy, he would not receive an income tax deduction but his estate would receive an estate tax deduction for the portion that goes to charity.
On the other hand, John can gift his life insurance policy to the charity and can claim an income tax deduction in the year that the policy is gifted. By transferring ownership of the policy to the charity, John has given up control and any benefits from the policy his children might receive, but the policy proceeds may be excluded from his estate. The three year rule applies, if John were to die within three years following the gift of the policy, the policy would be included in John’s estate.
John can also allow the charity to purchase a new life insurance policy on his life. By allowing the charity to make the initial purchase of the policy, the policy proceeds will be excluded from his estate. In addition, John may receive an income tax deduction for cash gifts to the charity to make premium payments.