SUISSE news Spring 2018 / May 2018
Estate Preservation through Charitable Giving
Ryan Daniels, Regional Sales Director, Desjardins Insurance 1)
Kusum Sen, BA, CHS, Financial Advisor, Desjardins Financial Security Independent Network
Good estate planning goes far beyond deciding who gets what; it speaks to the passion of giving and sharing. Whether your passion is to provide for those in need, or to create a scholarship or even to preserve Canada’s natural habitat, it can define your life and your legacy. Success can be measured more than material possessions; it can be about making a difference.
People work very hard to build their wealth over a lifetime but when they pass away they could lose half of what they’ve built to taxation. Wouldn’t you be interested in giving more of your estate to your beneficiaries? This is the basic premise of an estate preservation strategy that uses life insurance and investments to offset your final tax liability.
Many of us want to leave a legacy by donating a significant amount to charity. As the baby boom generation moves into retirement, the focus of certain estate preservation strategies addresses the need to minimize a final tax bill and create a lasting legacy through significant donations.
Why do people give to charity? A StatsCan 2016 study provides some answers - compassion, a true belief in helping others and the contribution made to one’s community were the leading reasons. Being personally affected by an organization’s cause and/or religious beliefs, round out the top five reasons. The sixth reason for donating to charity was for the income tax credit. Many people are taking advantage of being charitable.
Life insurance proceeds as a donation to charity provides the opportunity to achieve immediate or deferred tax benefits while creating a powerful future gift for the charity. While the charity receives the death benefit from the policy upon the death of the insured, there are two choices when it comes to receiving tax relief when donating life insurance.
There is an immediate opportunity for tax relief during the donor’s lifetime or deferred tax relief, benefiting the estate at death. While you’re alive, any donations or premiums towards a life insurance policy owned by a charity will receive a tax receipt for a portion of that amount. This credit is regulated both federally and provincially. The tax credit depends on the amount donated and the income of the individual donating. The following chart explains how donation credits are calculated in Ontario. The provincial rates vary across the country.
Donating the Gift of Life Insurance
Life insurance proceeds as a donation to a charity provides an opportunity to achieve immediate or deferred tax benefits while creating a powerful future gift for the charity. In this scenario the owner of the life insurance policy is the insured and the charity is the beneficiary. No donation receipts are given while the premiums are being paid, however when the charity receives the death benefit from the policy upon the death of the insured, the insured’s estate will receive a donation credit for the full amount of the benefit received.
By providing an option to preserve your estate with planned giving you can accomplish several goals. With traditional estate preservation methods, you can use life insurance to offset the tax liability to your estate by matching the amount to the expected tax bill.
For example a couple could purchase a policy that would pay out to the estate the expected tax liability on all of their assets upon the last of their deaths. In this scenario the heirs benefit by receiving, in effect, the full value of the estate.
Financial Planning 101 – Preserve the Estate by Eliminating Taxes with Life Insurance
By adding the component of a charitable donation strategy, you can accomplish estate preservation goals, same as above, so that the heirs receive the full value of the estate and donate a significant lump-sum amount to the charity of their choice. Outlined in the chart below the estate is preserved when the donation tax credit is received from the charity after they have received the proceeds of the life insurance. By making the beneficiary of a life insurance policy a registered charity, the death benefit is received as a donation to the charity and the estate of the insured person will receive a tax credit receipt for 100% of the amount received. This allows for greater donations and tax credits. This is a great financial planning strategy for those who are looking for tax relief in the future.
Insure the Estate with a Charitable Donation Life Insurance Policy –
It’s not what you take with you; it’s what you leave behind.
The Michael J. Fox Foundation is a leader in donations for Parkinson’s research. Today’s donations can lead to funding tomorrow’s treatments. Medical research in this field has improved the quality of life to those afflicted.
Giving & Saving with Graduated Rate Estates
The tax credit received by the estate can be used for the year prior to death, the year of death or any of the following five years thereafter. A combination of these three may also be used. This provides great planning opportunities especially for larger estates that may take years to wind down. Structuring when to claim the various donations matters because it will be a critical factor in determining the amount of tax you pay today, upon death, and what your heirs will need to pay after you are gone.
With a charitable donation estate preservation strategy you can fulfill your last wishes by providing a significant donation to something you truly believe in and make todays’ contributions tomorrow’s treatments or cures. Your good will can create a legacy and reduce your final tax bill to preserve the full value of what you worked a lifetime to accumulate in assets.
Do not go where the path may lead, go instead where there is no path and leave a trail.
- Ralph Waldo Emerson
For further information, please contact Ms. Kusum Sen, Financial Advisor with Desjardins Financial Security Independent Network:
155 Rexdale Blvd., Suite 406
Etobicoke, ON M9W 5Z8
Phone: 416 695-1433 ext. 0
Cell: 416 606-6088
Fax: 416 695-1713
This article should not be construed as insurance or financial advice, or as an offer or solicitation to buy any products or services mentioned herein. No one should act upon the examples/information without a thorough examination of the legal/tax situation with the appropriate professional advisors.
1) Desjardins Insurance refers to Desjardins Financial Security Life Assurance Company, a provider of life and health insurance and retirement savings products.