Life Insurance as a Planned Giving Tool

Life insurance can be an excellent planned giving tool for a donor who wishes to make a substantial gift to the Foundation to benefit the member Christian school(s). It is a way for moderate, tax-deductible deposits to be leveraged over time, resulting in a significant gift at the time of death. New or existing life insurance policies may be donated. There are many different ways life insurance can be incorporated into estate planning for the purpose of charitable giving (i.e. planned giving). Usually, some form of permanent insurance is used to fund gifts of this type. The following information provides a general overview of several of the basic methods.

Features of Charitable Life Insurance

• easy to set up and manage
• irrevocable gift if the Foundation is named as the owner and beneficiary of the policy
• tax credits are given for cash value and for future premiums paid – or –
• tax credit is given to the donor’s estate if the Foundation is the beneficiary only
• this kind of gift is not subject to probate if the death benefit is paid directly to Foundation

Other Considerations

Donors may name charities, such as the Christian School Foundation, as beneficiaries of a life policy and have their estate receive tax credits for the gift at death, even though such a gift does not go through their will. Alternatively, they might name the Foundation as both owner and beneficiary and receive receipts for premiums paid and/or the cash value at the time the gift is arranged, for immediate tax relief.

Receive an immediate and regular tax receipt

Where a donor names our Foundation as both the owner and beneficiary of a new or existing life insurance policy, an irrevocable (cannot be changed) gift is made – resulting in charitable tax receipts for the cash value built up in an existing policy, as well as for any future premiums paid.

A donor might choose this method if he or she has higher annual income and can benefit from the immediate and annual donation receipts.

Example: Mr. Smith is a very generous Christian school supporter. He wishes to leave the majority of his assets to his children but still wants his support of the Christian schools to continue after his death. He purchases a new $100,000 life insurance policy and names the Foundation as both the owner and beneficiary of the policy. Each year, Mr. Smith will receive a charitable donation receipt for all the premiums he pays. Upon his death, the Foundation receives the $100,000 to establish a fund for a special purpose or to replace the annual donation stream from Mr. Smith – with no taxes deducted from the gift.

Benefit your estate

When a donor names our Foundation as beneficiary – but not the owner – of a new or existing policy and they retain ownership of it, the gift is revocable (it can be changed). That is why there is no immediate tax receipts provided for the cash value or for the annual premiums. Instead, on the death of the donor, the Foundation receives the policy’s death benefit and issues a donation receipt to the donor’s estate. The resulting tax credits offset the amount of tax owed by the estate in the year of death. Because the gift passes outside of the will, probate fees are reduced and the Foundation and school receive the gift more quickly.

A donor might choose to structure a life insurance gift in this manner if he or she faces a significant tax liability in their estate due to RRSP/RRIF or capital gains income.

Example: Mrs. Jones is also a very generous Christian school supporter. She purchases a new $100,000 life insurance policy and names the Foundation as the beneficiary but retains ownership of the policy. Mrs. Jones will incur a large amount of capital gains income when her investments are liquidated upon her death. In this scenario, when she passes away, the Foundation receives the $100,000 death benefit and places it in the designated Christian school’s fund(s), in accordance with Mrs. Jones’ wishes. The Foundation issues a donation receipt to be used by Mrs. Jones’ estate to offset all the extra income tax owed in the year of death (as well as in the year prior in many cases).

We’re here to help!

Because of the many possibilities surrounding gifts of life insurance – all with varying tax implications – potential donors should seek professional advice before proceeding. We are available to review options best suited for your estate and charitable planning needs.