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The Money Management Newsletter: Insurance Products
Charitable giving through insurance: Making that special gift

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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Phone: (905) 844-7700

 





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