Planned giving is with life insurance

“I would like to donate $50,000 to an organization and many of my research points point to a strategy with life insurance. I’m not sure I understand why I should start such a process. This seems complicated to me compared to a cash donation. Can you enlighten me on this? » asked Edith.

We understand it. Anyone who has recently gone through the personal insurance rate process and is unsure about their incentive rate can go through these administrative steps again. But the game is well worth the effort. A planned gift through life insurance has many benefits, both for the donor and the beneficiary.

This planned donation strategy is very simple. There are usually two options: taking out a new life insurance policy or using an existing policy. Then simply name the chosen charity as beneficiary and trustee. The other situation involves leaving the policy by will or designating a beneficiary for the death benefit, while he remains the owner of the contract.

Advantages of this strategy

The reason why Edith should be encouraged to give life insurance rather than money can be summed up in one sentence: it will have a bigger impact, with the same budget. In fact the charity will be able to benefit from a much larger amount upon his death than with an immediate donation. The premiums paid on a whole life insurance policy not only buy a death benefit on your life, but also build cash values. A quick simulation shows that with the same $25,000, our reader could be left with $125,000 if she were to die at age 86. Depending on the insurer you chose, you can spread your contribution over several years or in one payment, if that is your choice.

In addition, in the case of a participating whole life policy, the surrender values ​​may, under certain conditions, be used during the life of the donor. This could be an option if the body has unexpected needs between now and death. However, it seems to me that it is more appropriate to use the gift strategy with life insurance to enhance the long-term stability of the chosen beneficiary.

Obviously, to implement such a strategy, you need to favor a charity that not only produces receipts for charitable donations, but also wants to ensure long-term sustainability . Our reader will therefore benefit from having the support of her advisor to select the beneficiary and coordinate the project with the in-house philanthropy manager.

Tax on gifts planned with life insurance

The charitable contribution credit is a non-refundable credit that reaches 53% cumulatively at the federal and provincial levels. The eligible amount varies depending on many factors that we will not explain here, but it is between 75 and 100% of the income earned during the product year. In the case of a donation made through a corporation, this is not a credit, but a reduction in net taxable income, and the saving varies according to the company’s tax rate.

In the case of a donation made during her lifetime, Edith could deduct the amount over the following five years. If she wants to benefit from the tax savings, she must prioritize the first strategy of a planned gift through life insurance presented above, thus naming her preferred entity as a beneficiary. custodian and beneficiary of the policy.

On the other hand, if the estate planning suggests large tax deferrals, the gift at death will be better for our reader, as long as we remain the owner of the policy. It should be noted here that tax planning is required if the policy is held personally to confirm that the amount of the contribution is effective based on the income in the year of death, which, remember, is sometimes difficult to predict! Remaining the policy holder also offers more flexibility, if you change your mind or need your protection for new personal needs, for example.

You don’t always need a new font

Sometimes it is possible that old life insurance policies taken out for personal needs are no longer needed or the death benefit amount is more than personal needs. In this type of situation, it is also possible to transfer the policy to the charity of your choice. A tax deduction will be given based on the market value or the compliance values ​​of that contract, and the deduction can be used in the year of transfer of ownership and for the following five years.

As with new policies, another option is to name the group as the beneficiary of the policy or part of the death benefit, so that the estate benefits from the tax receipt.

Finally, remember that a donation is a donation, so the tax credit should not be the main reason for you to add some philanthropy to your financial plan. But while you do it, do it while making the most of your family’s assets at the same time, which includes a personalized analysis of your situation.

Financial planner, Sandy Lachapelle is president of the independent company Lachapelle Intelligent Finances.

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