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Financial Fitness: Three ways to use life insurance for charitable giving

Many people are motivated to give to charitable organizations whose work is important to them.

Using life insurance for charitable giving can be an effective strategy to help you support registered charities of your choice. There are various ways to use life insurance to donate.

Once a donation amount, percentage or range has been determined, the next step should be to consider how the gift could be structured to help achieve the objectives.

These often include consideration of the tax relief available by gifting now, gifting upon death, or a combination of both.

Examples of how life insurance policies can be used for charitable giving include, but are not limited to, the following:

Donating the policy to a charity during your lifetime. Ownership of the policy may be transferred to the registered charity, which must be the irrevocable beneficiary, while the donor is generally bound to pay all premiums due according to the policy terms.

Each year the charity would issue a donation receipt for the total amount of the premiums paid, resulting in a continuing tax credit that may be used by the donor while he is living.

Using this strategy, however, means that the estate will not receive a donation tax credit upon the insured’s death.

Gifting all or some insurance proceeds by Will. When proceeds are donated by Will, the donor does not receive a tax credit for the premiums paid while he is living. The charity instead will issue a tax receipt upon the insured’s death equivalent to the amount of the donation made.

Naming a charity as a beneficiary of the life insurance. The form and timing of this strategy’s tax credit is similar to one received when making a donation by Will. The difference is that a beneficiary designation allows the donor the flexibility to easily change the beneficiary designation should circumstances change.

The charity receives its gift in a way that provides a clear line between the charitable gift and gifts for estate beneficiaries, which may minimize the opportunity for conflict.

These strategies help provide the opportunity for personalizing the timing of charitable receipts.

Each strategy has different tax consequences.

Donors should consult their tax professional to determine the structure that best suits their objectives. Be sure to also have a detailed discussion with your financial advisor about the different options that are available to assist you in making an informed decision.

Together, you can determine how to incorporate charitable giving into your overall financial strategy.

Deborah Leahy is an Investment Advisor with Edward Jones; Member of the Canadian Investor Protection Fund.
deborah.leahy@edwardjones.com

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