Estate planning done properly allows beneficiaries to enjoy assets without having to pay unnecessary federal estate tax. Experts say the wisest estate planning strategy also includes tax benefits for the person giving away assets.

People in Florida who plan to include charitable giving in an estate plan may choose to leave a cash donation. Some financial and legal advisors believe life insurance policies provide a better way to escape estate taxes and make a larger contribution to a chosen charity.

Money that accumulates within a permanent life insurance policy is not taxed when properly structured. In most cases, proceeds from a life insurance policy pass directly to a beneficiary without any tax issues. The value of a life insurance policy at a person's death is included as part of the gross value of an estate, but the estate may deduct life insurance proceeds as charitable giving. Some experts recommend transferring the ownership of an existing life insurance contract to a charity. A person who reassigns policy ownership avoids having to include the insurance as part of an estate and qualifies for a tax deduction in the year of transfer.

The original policy owner must outlive the transfer date by at least three years for estate tax savings to be effective.

Donating cash to charity after death is a popular idea in estate planning. Advisors say a life insurance policy purchased for charitable reasons increases the donation size without forcing the giver to pay any more than originally planned.

Instead of donating $1 million to charity directly upon death, it is possible to purchase a permanent life insurance policy for the same amount that includes a steadily rising death benefit. The tax-free added value of the policy grows over time, making the final gift much larger than a straight cash donation.

Another possibility is to enable a charity to take out a life insurance policy on the donor. The donor reaps a tax deduction for paying the policy premiums. Upon the donor's death, the charity receives the policy proceeds. The policy is not part of the donor's estate and no transfer waiting period is required.

Source: dailyfinance.com, "How to Use Life Insurance to Donate to Charity," Sheryl Nance-Nash, Dec. 7, 2011