Shawn Ryan, CFP, TEP Partner and Senior Insurance and Estate Planner with Scrivens Insurance and Investment Solutions has over 25 years experience in the financial services industry and has his CFP (Certified Financial Planner) and his TEP (Trust and Estate Practitioner) designations.
“Forever CHEO is important to me because our children are the future. I want to ensure that our local philanthropic population understands their charitable options and therefore will empower them to make better and more informed decisions on how they may donate their gift to this wonderful and invaluable cause!”
CHARITABLE GIVING WITH LIFE INSURANCE POLICIES – A WIN-WIN FOR BOTH FAMILY AND CHARITIES
The use of life insurance in the context of charitable gifting at death will appeal to those who want to reduce or eliminate taxes at death and/or have a strong desire to make a larger bequest to one or more charities.
Life insurance is a popular, practical way to make a significant gift to CHEO. Your donation will be wisely administered through investments which will provide a stable source of income to CHEO for years to come.
There are three main methods you can gift life insurance: by making a bequest of the proceeds of a life insurance policy through your Will; donating the policy during your lifetime at fair market value; or by naming CHEO as beneficiary and remaining as policy owner.
Here is a scenario where a mother owns a family business and wishes to gift the shares to her adult children through a provision in her Will. She wants to eliminate capital gains taxes of the shares payable at her death. The taxable capital gains reportable on the deemed disposition of shares on death is $500,000 and tax owing on this amount is $230,000 (base on a 46% marginal tax rate).
She also wants to make a sizeable donation to her favourite charitable organization, but doesn’t want to reduce her estate assets.
Given the options mentioned above, she decides that the most viable solution is to purchase a permanent life insurance policy for $500,000 and donate the proceeds to charity through her Will.
This is a win-win for both her family and the charity. She will own the policy during her lifetime and name her estate as policy beneficiary. She will direct that a gift in an amount equal to the life insurance proceeds be paid to a charity named in the Will. The charity will receive the lump sum amount equal to the insurance proceeds upon her death. A tax receipt issued for 100% of the donation by the charity will qualify for a tax credit to be used in her final tax return. This credit has completely eliminated the tax liability on the shares at death and the estate value is preserved. In this case, premiums for the life insurance policy are
paid with a relatively small percentage of the funds that would otherwise have been used to pay taxes owing.
The use of life insurance in the context of charitable gifting at death will appeal to those who want to reduce or eliminate taxes at death and/or have a strong desire to make a larger bequest to one or more charities. This should be considered in the bigger context of planned giving options available to donors both during their lifetime and at death.
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