Charitable Giving with Life Insurance–How to do Good for Your Own Benefit.
Canada has a generous tax credit system for donors to charities. This can be turned into a win-win for you, financially. Along with the terrific feeling of knowing your money is making a difference, your carefully targeted donation can yield some great tax breaks—for you right now, and perhaps also for your estate.
A donation is defined as a gift for which no consideration is given in return. Meaning, you don’t get anything back for what you are giving—except for some great tax planning. The recipients of your largesse can be registered charities, educational institutions, clubs and many political bodies. Visit this link for a full list as approved by the federal government.
Donate a new or existing life insurance policy. This has a lot of great benefits. Upon your death, the policy will result in a tax receipt for the value of the policy, if you specify a charity as the beneficiary. Alternatively, you can donate a policy while you are alive, and the premiums you pay will produce a yearly tax deduction.
In addition, the charity of your choice can receive a much larger amount of money in the future. For example, making monthly donations of $50 over 20 years will add up to $12,000. But if you take out a $90,000 life insurance policy and pay $50 monthly premiums over the same 20 years, the charity receives $90,000. While the amount you are donating remains $12,000.
Charitable giving can be used as part of your estate planning. If you name the charity as the beneficiary of a new or existing policy, you retain control of the policy, and the charity receives the proceeds upon your death. If you name your estate as the beneficiary, your estate receives the death benefit and you simply leave instructions in your will that the proceeds from the policy will be paid to the charity you specify.
In both cases, the death benefit qualifies as a tax credit on your final income tax return. But with the first option, because the money is paid directly, it bypasses the estate and avoids probate costs. With the second option, it becomes part of the estate.
Before choosing which scenario to follow, you need some good tax planning and a review of your financial strategy. So, give us a call to discuss how charitable giving and life insurance can be a win-win for both you and the for charity you’re passionate about.