Planned Giving Using Life Insurance
The holidays are a time in which we reflect on how we are making an impact on the community. Whether it is the gift of time, dropping non-perishables off at the food bank, or annual donations to a favorite charity, the opportunities to make a difference are endless.
What if you could be even more proactive in making a philanthropic impact? What would this look like to you? A key component of our discovery process is social capital, addressing the possibility of making charitable gifts throughout one’s lifetime or as part of their estate plan.
While there are families who make charitable gifts a focal point of their estate, it is more common for families to make sure the family is looked after first and would only consider significant charitable gifts if it is possible. When asked why, most think it is not possible. However, planned giving using life insurance allows individuals to make a substantial difference to a charitable organization with a modest financial outlay.
How does it work?
Planning giving using life insurance can be initiated in two different ways:
Charity owns the policy: The donor purchases a life insurance policy in which the charity becomes the owner. On an annual basis, an amount equivalent to the annual premium of the policy is donated and subsequently, the donor receives a tax credit for this donation. Upon death, the charity receives a substantial donation in the donor’s name.
Donor owns the policy: The donor purchases a life insurance policy and elects the charity to be the beneficiary. Throughout the life of the contract, the donor maintains ownership and control. Upon death, the charity receives a substantial donation in the donor’s name.
The Income Tax Act permits taxpayers to receive credit for charitable bequests up to 100% of their income in the year of death. Therefore, the donor’s estate receives a tax receipt for the donated amount, resulting in a tax credit that can effectively offset a portion of the deceased’s terminal tax liability.
Ultimately, planned giving using life insurance makes it possible for individual or family to create a tax efficient, long-lasting legacy with an effective use of a capital.
How would you like to make an impact?
