Posted 06 Jun 2014 by Melissa Allan
Charitable giving has become increasingly popular in Canada within the last decade. Many people are unsure of what a planned gift is and how it can fit into their financial plan. If there is a charity or foundation that has a special place in your heart and you have an interest in off-setting current or future tax obligations planned giving using life insurance is a strategy that can work for you.
Charitable giving in Canada has increased for many reasons: cutbacks have occurred in government funding to charities, there are more opportunities to increase donations while living and people are realizing that the opportunity to crate a lasting legacy without reducing the estate available to heirs or jeopardizing their future financial independence.
With the cutbacks in government funding, charities have become more aggressive in their marketing attempts to replace this income and are looking for stable funding over the long term.
There are several ways to make a donation and different things to consider for each option. Some of the more common options are highlighted below:
- Convenience is usually the reason why this method is chosen and why it’s the most popular method for most people.
- Making regular donations allows for an annual tax receipt.
- Money is given to the charity today, not tomorrow.
- Contribution frequency can be made at the choice of the donor.
- The amount donated can fluctuate at the donor’s discretion.
- The amount given to a charity in the end only equals the amount put in.
- Charity gets cash every year that the donor wishes to donate.
Leaving a gift In your will
- There is no cost to include a charitable gift at death through a will, making this an attractive option as well.
- The assets remain available to the donor while alive.
- There is no tax relief while alive and without care, it can be contested by heirs.
- There may not be enough in the estate to make a meaningful gift and because it’s part of the estate, it’s subject to probate fees and creditors.
- Bequests of property in your will may take a burden on the charity. For example, a donate may leave some income-producing property to a charitable organization. This may involve troublesome management aspects, the collection of rent, the maintenance of property, etc.
Planned giving using life insurance
The 2000 Federal budget allowed charities to be named beneficiaries under a life insurance policy that is owned by the donor. As a result donors have more options on how to structure their donations using life insurance:
- Donors can get annual tax receipts on premiums if they have the charity own the policy and also have the charity set up as beneficiary of the policy.
- Donors can get a tax receipt calculated from the death benefit in the year of death if they own the life insurance policy and name the charity as the beneficiary.
- Either way, the life insurance proceeds aren’t part of the estate and there are no probate taxes and creditor claims on this amount .
- Charity gets life insurance proceeds when the donor passes away—which can be a substantially larger donation than if the donor gave cash each year.
- At death of the donor, there is no delay of payment as the life insurance proceeds are paid at once and in cash. A bequest created by a will, in contrast, may not be settled for a considerable period of time.
Consult with either Rick or myself on the best way to structure your planned gift using life insurance as it does depend on several factors.
All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change.
This information is provided by the Great-West Life Assurance Company