124 / May a charitable contribution deduction be taken for a gift of a life insurance policy if the donor retains a right, shared with the donee charity, to change charitable beneficiaries?
While the IRC generally disallows a charitable deduction for gifts of less than the donor’s entire interest in property, it does permit limited exceptions to this rule. One of these is a gift of an “undivided interest” in property. This means that the donor may give less than his entire interest and still take a charitable gift deduction if he gives “a fraction or percentage of each and every substantial interest or right” he owns in the property.1
In a letter ruling, the IRS took the position that a gift of a life insurance policy to a charity was deductible even though the donor retained the right, exercisable in conjunction with the donee charity, to change the charitable beneficiaries. The IRS reasoned that by sharing the right to change charitable beneficiaries, the donor had given an undivided interest in the right he retained and thus the gift came within the exception to the rule against deducting partial interest gifts.2
1. IRC § 170(f)(3)(B)(ii); Treas. Reg. § 1.170A-7(b)(1)(i).