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 The
Money Management Newsletter: Insurance
Products
Charitable giving through insurance: Making
that special gift
By Martin Kosterman
Money Management Newsletter
If you would like to make a truly special gift - one
that creates a living legacy in your name - life
insurance may be the answer. It's a low-cost way to endow a favorite
Canadian institution or association and can go a long way to minimizing
the final tax payable upon your death.
This method of planned giving also allows you to leave
a sizable bequest to your favourite charity while ensuring minimal impact
on the beneficiaries of your estate.
What is involved?
Charitable giving through life insurance is a relatively
straightforward estate planning solution. However, it is important to
remember that in order for it to be effective, you must ensure that the
policy in question is a permanent one. In other words, it must remain
in effect until you die.
Depending on your wishes and requirements, you should
also pay special attention to the way that the life insurance policy is
structured since this will determine the type of tax credit you will be
eligible for. Some of the more common policy structures include:
- Setting the policy up with the charity of your choice
as the owner and the beneficiary. This ensures that the proceeds from
the insurance policy will be given directly to the charity. The insurance
premiums paid by you each year will also generate a yearly tax credit.
- Setting up the policy with the charity of your choice
as beneficiary. This will allow you to receive a tax credit, provided
that the policyholder is the same person as the donor.
Below is a chart that further explains some of the options
related to charitable giving and life insurance:
|
Owner
|
Beneficiary
Designation
|
Revocable
|
Subject
to Probate
|
Tax
Credit
|
| Donor |
Estate
(with legacy to Charity in Will) |
Yes,
by changing your Will |
Yes |
Yes
- credit based on amount left to charity in Will on insured's death.
Credit is claimed in final tax return. |
| Donor |
Charity |
Yes,
by changing beneficiary |
No |
Feb.
2000 budget allows tax credit retroactive to Jan. 1/99 for deaths
after 1998. Prior to Jan. 1/99, no tax credit available. |
| Charity
(from outset) |
Charity |
No |
No |
Yes,
as each premium is paid, based on annual premium. |
| Donor |
Absolute
assignment to charity |
No |
No |
Yes,
as each premium is paid, plus credit on the value of policy at assignment
date. |
Charitable giving through life insurance is becoming
more and more popular. It's financially effective because a substantial
asset can be created with a comparatively small investment. Also, there
are none of the administrative expenses or potential estate disputes associated
with bequests made in a will.
Fiscal Agents can provide more information on the "gifting"
of life insurance and how it can be arranged so you'll enjoy the maximum
tax benefit.
If you have responsibilities as a fund raiser for a
charitable organization, you may also want to investigate how life insurance
might play a part in your planned gifting program.
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© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, ON L6K 1C6.
Phone: (905) 844-7700
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