Charitable Giving Using Life Insurance.

To give your time and/or money to your favourite Registered Charity is one of the most selfless acts a person can do during their lifetime and at the time of death. Let’s face it, donors are the reason Registered Charities can help our communities. Do you have a favourite Registered Charity that you contribute time and/or money to every year? If there is, here is a way you can use your life insurance to leave a legacy for this Registered Charity after your death. Using life insurance is a great way to continue to support your favourite Registered Charity after your death and to have tax relief at the time of death but also perhaps during your lifetime depending on the structure. These assets can benefit the organization as well has help you fulfill your philanthropic objectives. By using your life insurance as a gift to a Registered Charity you don’t tie up any of your assets today and you can set it up so you will make a significant gift while using very little money to generate that gift.

Giving through your Will

In your Will you would name the Registered Charity of your choice as the beneficiary of the proceeds of your life insurance at the time of your death. Your estate will receive a tax credit of 100% of your net income. You do not garner any tax benefit while you are alive with this scenario. You may also leave the chance that your estate could be tied up for an extended period of time and therefore the amount paid to the Registered Charity becomes a lot smaller than originally planned.

Buy Life Insurance and Assign to Registered Charity

Another option would be to buy a life insurance policy and then assign that policy over to your favourite Registered Charity as owner and beneficiary. Premiums paid from this point on can qualify as a donation to that charity. The Registered Charity issues a receipt for the premium you have paid each year and that is what you use as your donations when you file your income tax.

If the policy that you assign to the Registered Charity is an existing policy that has built up a cash surrender value you will want to talk to that insurance company to find out if there will be any taxable income attributed to you at the time of transfer. With this type of transfer the cash surrender value will equal the receipt that the Registered Charity will issue to you. The Registered Charity may also issue receipts for the premiums you have continued to pay after the time of transfer.

With this scenario your estate will receive a receipt from the Registered Charity equal the proceeds of the death benefit.  This contribution may indeed help to decrease the tax liability you may have at the time of your death. As you can see, depending on the face value of the life insurance the contribution could be quite significant.

The Federal and Provincial Governments allow Charitable Donation Tax Credits to be claimed on gifts that qualify up to 75% of your net income while you are alive. Upon your death that tax credit increases significantly to 100% of your net income.

Another option would be to continue to own the Life Insurance policy but name the Registered Charity as the primary beneficiary. At the time of your death the proceeds go tax free to the Registered Charity and they in turn issue a receipt and you do not have to worry about any complications that may arise in the handling of your Estate.

Always consult your financial advisor and tax planner to make sure that the execution of your wishes are set up properly and that all tax implications have been explored before finalizing it. Again, Charitable Giving through life insurance is an outstanding way to help your favourite Registered Charity continue to do the great work they do after your death.

Written by Scott Wallace

Scott Wallace has been in the Insurance and Investment industry for the past 19 years. His role is to take what is important to his clients and help them make those dreams a reality. Scott is a CFP, CLU and a Qualifying and Lifetime Member of the Million Dollar Round Table.

One Response to Charitable Giving Using Life Insurance.

  1. One other option that works similar to assigning the policy to the charity is to make the charity an irrevocable beneficiary. This way you maintain control of the policy and it can’t be surrendered without your consent while still maintaining the right to deduct the annual premium.

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