Ron s. gilbert

Lifecycle Financial Strategies

Charitable Giving

Have you ever heard someone say… “One day when I have more money I’ll do this or that wonderful thing …”?

Legacies are those things that you want to leave your mark on even after you are gone, the people, causes, and institutions you care deeply about.

  • Charities / Societies
  • Your Church
  • Community Group
  • Youth Program
  • Seniors Center
  • Scholarship Trust

Traditional estate planning can miss this very important piece of your life’s work.

Using the power of planning vehicles and financial tools we can create more wealth for your chosen beneficiaries and lessen your estates tax bill at the same time.

Gifting with Life Insurance

Life insurance is a common way to provide a gift to a charity. There are two main ways to set up a gift of life insurance, with different tax consequences for each.

The two main ways to structure a gift of life insurance are:

(1) Your Charity is the beneficiary and owns the Life Insurance Policy …

The first way is to set up the chosen Charity as the owner and beneficiary of the life insurance policy with you paying the premiums. When the life insured passes, the proceeds would flow through to the charity as the beneficiary.

With this set up the donor can claim an income tax credit annually for the life insurance premiums paid. With this setup there would not be a credit available to the decease`s estate upon payment of the life insurance benefit. Another drawback is that the donor gives up control to the charity as owner. If there is a change of circumstance or even a – change of heart – the only option would be to stop paying the premiums for the policy. The charity would then have to decide whether to continue making the premium payments, surrender for any accumulated cash value or allow the policy to lapse.

(2) Your Charity is the beneficiary of the Life Insurance Policy only…

With this set up the donor buys the life insurance, owns the policy and makes the premium payments. The owner can name the estate as the beneficiary of the policy, and then through the will can gift the proceeds of the life insurance to the chosen charities or simply make the beneficiary designation on the policy itself.

While the donor is living there is not tax credit available for the premium payments as a charitable donation. Although, when the donor passes, the entire proceeds of the life insurance are treated as a donation in the year of death. This can offset taxable income for the final tax return or for one year prior if necessary.

This arrangement allows the donor to retain control of the policy in case there is a change of financial circumstances or charitable intentions. The disadvantages are that no current tax credit can be claimed while the owner is alive and depending on the size of the life insurance benefit and the donors income – the full amount of the charitable donations tax credit may not be used.

Worth noting – when the gift of life insurance flows through a will, the money becomes subject to probate taxes and other estate admin charges. Creditor protection is also lost when the money enters the deceased estate. It is generally advisable to structure all life insurance proceeds through a revocable beneficiary designation.