I have made several large, multiyear pledges to nonprofit groups that I support. I am healthy now, both financially and physically, but in my late 70s. As I get older, I am concerned that these charities receive the assets even if I should die before fulfilling my commitments. I am considering making them beneficiaries to my life insurance policy. Is this the best solution?

Because life insurance proceeds are generally income tax–free to the beneficiary, leaving the proceeds to an heir would be a more desirable option than leaving them to charity. Another disadvantage of using life insurance is that the beneficiary list would need to be changed frequently—as the pledges were paid down annually from other sources, the percentage of life insurance proceeds required to fulfill the pledges would also need to be reduced.

When giving to charity, IRD assets (income in respect of a decedent) would generally be a better choice, particularly from tax-deferred accounts.  IRD assets are essentially income that a person has already earned but not yet received. IRAs, 401(k) plans, unpaid dividends, interest, wages and commissions are all examples of IRD assets. Gifting IRD assets is a win-win for both the estate and the charity:  The charity gets the donation, and the estate receives a charitable deduction in the amount of the donation. Consult an attorney to insert a line into your will or trust specifying that any unfulfilled pledges to these particular charities will first be paid from IRD assets. Such a clause will benefit both the charities and the heirs to your estate.

As an alternative, you could simply make the charities the beneficiaries of an IRA. Although there would still be the annual beneficiary changes needed, as in the life insurance scenario, the charities would not pay taxes on the money and the heirs would get the life insurance proceeds, which are income tax–free.

Jonathan Clark, Financial Enhancement Group,  Anderson, Ind.

Naming charities as beneficiaries could address your concern. However, without knowing the details of your insurance, you should consider that its expense increases with age, and it may be difficult to coordinate the death benefit to the amount of unpaid pledges. It may also be appropriate for you to consider transferring your existing life insurance to a life insurance trust to reduce your taxable estate; in that case, it would not be appropriate to use the insurance to pay outstanding pledges.

It may be simpler to consider amending your will to include a bequest for the amount of the unpaid pledge. For example, your will could say that you bequeath to a particular charity the amount of the original pledge, less payments made during life.  Your executor would confirm the amount owed and make that payment, satisfying the pledge. This should qualify as an estate tax charitable deduction.

If you have an IRA, you could consider naming the charity as a beneficiary of a portion of the IRA, with the amount being determined in the same manner as above. This has the added advantage of directing to a charity, which doesn’t pay income taxes, assets that would otherwise be taxable to your family members. Careful drafting is necessary with either of these approaches.

Finally, it may be possible to do nothing. Charitable pledges may or may not be enforceable as valid debts, depending on state law. If a pledge is recognized as a debt in your state, the charity could file a claim against your estate for the outstanding pledge, which your executor would verify and pay.  This debt would reduce your taxable estate.

Gillian R. Howell (Hartford, Conn.) and Ramsay H. Slugg (Fort Worth, Texas), U.S. Trust, Bank of America Private Wealth Management

Given that charitable pledges paid at death are tax-deductible for estate purposes, using an asset such as life insurance isn’t the best way to go.  A better solution is to find a taxable asset, such as an IRA, qualified pension or profit-sharing benefits, or nonqualified deferred compensation. These assets are all subject to estate and income taxes, but because charities are tax-exempt, they’re the most efficient recipients.

If you don’t have an IRA, you can establish a charitable remainder trust or other planned-giving vehicle. You’ll receive an income tax benefit upon its creation and continue receiving income from the assets while you are alive, and, upon your death, the remainder can be paid to the charities of your choice.

Lawrence I. Richman, Neal, Gerber & Eisenberg, Chicago