Charitable Split Dollar

Recently, there has been some publicity of a type of charitable gift, called charitable split dollar, that generated a significant income and estate tax deductions and resulted, in essence, with a deduction for insurance premiums. Basically, under a so-called charitable split dollar arrangement, a donor would contribute an appreciated asset to a charitable organization which would, in return, agree to purchase a life insurance policy on the donor for the benefit of the donor’s heirs or estate.

In a tax bill signed into law by President Clinton on December 17, 1999, Congress officially put an end to this tax scheme. Under current law, the donor is denied a deduction for the charitable contribution and the charitable organization could subject itself to an excise tax for promoting this tax avoidance scheme.