Leaving a Legacy using Charitable Gifting Strategies

Curtis Haigh Blog


B97483273Z.120150805143608000G5JAD8RV.10There is no shortage of reputable registered charities in Canada to donate your time, attention; and hard earned money. Here are some charitable strategies that will enable you to donate to your favorite charity, as well as save tax!

Canadians are allowed to deduct charitable donations from their income tax, which can directly offset taxes payable as a tax credit.  There are two charitable tax credits calculated at both the federal and provincial level; and any eligible amount you give above $200 qualifies for the higher rate!  Lets take this example:

  • Suzette lives in Saskatchewan and donated $400 in 2013 to her favorite charity over the course of 12 months. The federal charitable tax credit is 15% on the first $200 and 29% on the remaining $200, therefore, Suzette’s credit would be calculated as (15% x $200) + (29% x $200) = $88.
  • In Saskatchewan, the provincial charitable tax credits for 2013 are 11% on the first $200 and 15% on the remaining $200.   Suzette’s provincial credit would be calculated as (11% x $200) + (15% x $200) = $52.
  • Combined, Suzette’s charitable tax credit is $140 ($88+$52)

From an estate planning perspective, there are other ways to donate to your favorite charity and reduce taxes payable during life; and upon the death of the taxpayer using Life Insurance.

Charity Owned Policy

A registered charity can acquire a life insurance policy under which the donor (taxpayer) is the life insured and the charity the designated beneficiary.  In Canada, a life insurance contract needs to be made between parties who have an ‘insurable interest’ in one another. Obviously since the charity does not have a direct insurable interest in the donor the charity must obtain consent when applying for the policy.  In most cases, the charity will become the owner and beneficiary of a policy that is already owned by the donor; or the donor will initiate the entire process themselves using this structure.  The donor (taxpayer) will be the life insured and the payer of the premium, while the charity will be the beneficiary.   Where the donor donates his/her existing life insurance policy to a charity or a charity taxes out a policy on the donors life, all premiums paid by the donor (taxpayer) will be considered a charitable donation eligible for the charitable tax credit.   In the case where an existing policy is to be donated to a charity, the donor may get a credit for the value of the existing policy that is to be donated.  Upon the death of the donor, the charity will receive the death benefit and there will be no further tax benefits that accrue to the donor or his/her estate.  One drawback of this structure is if the policy is currently owned and is gifted, the donor must make an absolute assignment (which translates to: transfer of ownership) of the policy to the registered charity, and also name the charity as the beneficiary to obtain the donation tax credit.  For this reason, a donor needs to be very certain of their charitable intentions and wishes before gifting a policy to a charity.  As you can imagine, this could be a very useful tool to obtain some potentially significant tax advantages throughout the life of the donor, while benefiting those causes that are most important to you and your family.  Precision Financial, your Trusted Saskatoon Insurance advisors, can help answer any questions you may have regarding this strategy.

Donor Owned Policy with Charity as Beneficiary

charityasbeneficiaryDesignating a charity as a beneficiary on a life insurance policy is a popular strategy for a philanthropic taxpayer who expects significant taxes on their estate.  If a donor takes out an insurance policy and names their favorite charity as the beneficiary he/she will not qualify for a charitable donation tax credit for the premiums that they pay to keep the policy in force.  That said, the donor may claim a charitable donation credit on his/her terminal tax return (equal to the death benefit paid to the charity).  The donation limit for gifts in the year of death and the preceding year is 100% of net income.  Not only is this an effective method used for estate planning purposes, it allows the flexibility if the donor changes his/her mind as to the charitable organization that will benefit from the gift.  Finally, as this donation is made by way of life insurance designation, the proceeds pass outside of the estate and are not subject to probate fees OR the estates creditors. This is an especially important tool when discussing estate planning objectives with your advisor, as the opportunity exists to significantly reduce taxes payable to the estate on death using this strategy.

trustedsaskatoonPrecision Financial, your Trusted Saskatoon Insurance and Investment planners are qualified to assist you in developing strategies for donating life insurance policies to charities, and any other estate and financial planning requirements you may have.   Contact Us with any questions you may have regarding your charitable giving ambitions and let us help you leave your legacy!

To confirm if a Canadian charity is registered and eligible to issue donation receipts, you can search here

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