Life Insurance Giving
GIFT OF LIFE INSURANCE
Donating life insurance to a charity can be an excellent way to transform affordable premium payments into a substantial future donation. There can also be tax saving benefits.
There are three ways you can use life insurance to donate to charity:
1. Name a charity as the beneficiary on your policy – The charity receives the insurance proceeds like a regular beneficiary would, but the payments to the charity are considered a donation in the year of death. The receipt issued qualifies for a tax credit that can offset the income tax liability on your estate. This is quite beneficial if you’ve accumulated certain assets that would be subject to a significant tax liability upon your death. It may allow your heirs to receive a higher value of your estate and the charity to receive a significant gift.2. Donate an existing or new life insurance policy directly to a charity – You receive an official tax receipt for any cash value present at the time the donation is made on a paid-up policy. This provides an immediate tax benefit while you are living. After you make the initial donation of a new policy, you can make deductible cash gifts to the charity, which the charity can then use to make the premium payments, or you can pay the premiums directly to the insurance company. In either case you will get a tax receipt reflecting the premiums paid. Donate certain assets to a charity and use a life insurance policy to replace the value of the donated assets – You receive a charitable tax receipt for the amount you donate, or the fair market value, if you donate other assets, such as securities or property. With the tax savings resulting from the charitable gift, you can purchase a life insurance policy for the value of assets donated, naming your heirs as beneficiaries—a process called wealth replacement. The proceeds of the policy will not be included in your estate for probate tax purposes and are payable tax free to your heirs as part of their inheritance. This option ensures that your estate is not diminished even though you are making a significant donation.
It is always important to consult a qualified tax consultant or Chartered Accountant when deciding on the best strategy for managing your estate or your tax situation.
For more information, please contact:
Life & Hope Foundation
313-4600 Bathurst Street
Toronto Ontario Canada