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Depending on your personal objectives and situation, there are a number of ways to use an insurance policy for charitable giving.
The first is through your will. Under this scenario, you name your estate as beneficiary of a whole life, universal life or term insurance policy. On death, your estate receives a tax-free payment from the insurance company. The charity receives a bequest based on instructions set out in your will and provides a charitable tax receipt to your estate. As a result, estate tax is reduced, leaving more funds available to your heirs. A similar strategy is to designate the charity as beneficiary of the policy. When you die, a tax-free payment is made to the organization, which then issues a tax receipt to your estate. The benefit of this approach over the first is that the insurance proceeds bypass your estate and avoid probate fees. For families, an even better approach might be to name your heirs as beneficiaries of the life insurance policy and leave a bequest in your will for the charity. The advantage here is the certainty that your loved ones will receive a minimum, tax-free payment from the insurance company immediately after your death, without having to wait for your estate to settle. The funds also avoid probate and are protected from any claims on the estate. Similarly, if you have assets within an RRSP or RRIF, and no spouse to benefit from a tax-free rollover or no other assets, you could name the charity as beneficiary of the registered plan and then use a life insurance policy to provide for family members. With any of the above strategies, you can change your mind at any time during your lifetime if your situation or wishes change. But if you're in a position to make a commitment to a charity, you can enjoy financial benefits right away. One such strategy involves gifting an existing permanent insurance policy to a charity and continuing to pay the premiums. As the new beneficiary and owner of the policy, the charity gives you an immediate tax receipt equal to the cash surrender value, less any loans made on the policy. In addition, each year you receive a tax receipt from the charity for the total premiums you pay annually. On your death, the charity receives the insurance proceeds but no additional tax receipt is issued to your estate. A variation of this strategy is to arrange for a new life insurance policy on your life and to name your estate as the beneficiary. Once the policy is issued, you transfer ownership to the charity, which then names itself the beneficiary. Again, you continue to pay premiums and receive a tax receipt each year but receive no further tax breaks after your death. The immediate tax benefits of promising insurance proceeds to a charity during your life can be significant. For example, if your insurance premiums are $800 a month, the tax credit you earn at the end of the year effectively lowers the monthly cost to about $426. Keep in mind that to receive a tax credit for insurance premiums, ownership of the policy must be transferred to the charity. Sometimes, a combination of the gifting strategies outlined above is appropriate. In most cases, the life insurance policy can taken out on the life of a spouse or on the last of the two to die. You can see that with a little planning and the optimal use of a life
insurance policy, you can make your generosity go even further.
Fo reach Martin Kosterman - click here or 905-844-7700
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©
, Fiscal Agents Money Management Newsletter 
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