Charitable Giving using Life Insurance

Article Licenses: DL, unknown, unknown
Advisor Licenses:

Compliant content provided by Adviceon® Media for educational purposes only.

---

Generosity is for everyone. All it takes is a willing spirit and the courage to be used for something greater than ourselves. ¹ 

Permanent life insurance is a cost-effective way to make a much more significant contribution to the charity of your choice than would otherwise have been possible. Gifting a new policy or an existing policy can help the charity of your choice. Determine what charity aligns with your life purpose and will bring you the most satisfaction.

There are two effective methods to achieve this. One is an outright gift of a life insurance policy, making the charity the policy owner. The second is gifting the death benefit proceeds while you retain ownership.

1. Making the charity the owner of a life insurance policy

This strategy also side-steps some potential problems if such a legacy is made via your estate.

• You purchase a policy on your life, making the charity the owner and beneficiary.
• Only the charity can change the beneficiary.
• The charity as the established owner of the policy mitigates any dispute over ownership by other heirs once you die.
• You make donations to the charity that then pays the premiums.
• You can receive a tax break for the premiums you’ve paid via the charity.
• The charity receives all of the death benefit proceeds when you die free of tax.
• The benefit payout cannot be contested, taxed, or claimed by your creditors.
• The capital death benefit guarantees payout to the charity, and in some cases, the death benefit may grow over time. The death benefit is paid tax-free to the charity of your choice.

The tax benefits while you are alive When the charity owns the policy, under Canadian tax legislation, you can receive a tax break for the premiums that you’ve paid during your lifetime, insofar as they are made after the charity owns the policy. In addition, you can receive a tax receipt for the fair market value of any cash value of the policy when you donate an existing policy. There are no further tax deductions in your estate (on your last tax return done by your executor after your death).

2. You own the life insurance policy

In this strategy, you own a life insurance policy on your life, while the charity receives the full proceeds of the policy upon your death.

• You own the policy.
• You have access to any cash value of the policy, if necessary.
• The charity is the beneficiary though you can change it.
• Other claimants, such as a creditor, may challenge the right to the proceeds.
• Tax benefits to the estate (your final tax return) may apply for some of the policy proceeds after your death. Note: Discuss with your tax advisor.

As the policy owner, you can change beneficiaries and have full access to any accrued cash value over your lifetime. The proceeds from the death benefit are not subject to probate nor estate administration fees, nor will the gift be on the public record.

When a charity is the designated beneficiary of a life insurance policy on your life, the charity receives the proceeds of the death benefit upon your death. Your tax advisor can advise you if the tax-free benefit paid to the charity, as the beneficiary, generates any disposition to your estate (as it would on an owned asset such as a gifted cottage that has accrued value over time).

The tax benefits to your estate after your death The charity will issue a charitable receipt for the entire amount paid to them in the year of your death. The entire capital created at your death, referred to as the death benefit, will account for a charitable donation on your final tax return prepared by your executor.

Note: Your tax advisor can assess any tax due in the estate for cash values accrued according to changing tax law.

Life insurance can be part of an ongoing charitable gift plan or offer your estate a significant tax break when the death benefit pays out to the charity.

David Toycen sums up the importance of our gifts to charity: If I am generous to someone, that person will likely be generous to someone else. There is an argument to be made that the universe was created to operate this way. ² 

Ask your life insurance or tax advisor to guide you in strategically setting up a charitable life insurance policy to enable the best possible tax savings.

^{1, 2 The Power of Generosity, Dave Toycen. Pres. World Vision, Canada, (Harper Collins Publishers, 2004)}

 

---

 

Publisher's Copyright & Legal Use Disclaimer

All articles are a legal copyright of Adviceon®Media and are for educational purposes only. The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This website is not deemed to be used as a solicitation in a jurisdiction where this representative is not registered. This content is not intended to provide specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the information contained herein is subject to change without notice. References in this website to third party goods or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services. Always consult an appropriate professional regarding your particular circumstances before making any financial decision. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision.

Mutual Funds Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investment funds, including segregated fund investments. Please read the fund summary information folder prospectus before investing. Mutual Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any financial decision. A description of the key features of the applicable individual variable annuity contract or segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.

Life Insurance and Segregated Funds Disclaimer

Life Insurance policies vary according to contract terms. Please read any Life Insurance policy contract provided, or the segregated fund summary information folder prospectus before the time of purchase. Full details of coverage, including limitations and exclusions that apply, are set out in the policy of insurance. Commissions, trailing commissions, management fees and expenses may be associated with segregated fund investments which may not be guaranteed and their market value changes daily and past performance is not indicative of future results. A description of the key features of a life insurance policy, a segregated fund; and any applicable individual variable annuity contract is contained in information provided by the company from which it is purchased. Talk to your advisor before making any financial decision. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. The information provided is accurate to the best of our knowledge as of the date of publication and is general in nature, intended for educational purposes only, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. Rules and their interpretation may change, affecting the accuracy of the information.

Mutual funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This content was prepared by Adviceon® for the benefit of David Byers, and Phil Paquette who are Investment Funds Advisors at Integrated Wealth Management a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.