Creating a Legacy:Life Insurance & Charitable
Gifting
John Jordan, CFPInsurance & Estate Planning Specialist
Topics Covered
• Testamentary Charitable Gifts • Gifts given in the estate• Donation receipts used to offset tax in the estate• Preserve estate value
• Charitable Gifts of Life Insurance now• Combined with annuity to increase income• Preserve estate value• Lower annual income tax
Where will your Social Capital Go?
• By Default• You have 2 beneficiaries when your estate settles
• Your family and CRA
• Self Directed• Introduce charitable gifting into your estate plan• You now have 3 beneficiaries when your estate settles
• Your family, charity, and CRA
Self Directed Plan: Pick 2 of the 3!
…It was an honest mistake…
We didn’t say we were going to
“Scrap the tax for you…”
We said we were going to
“Tax the crap out of you…”
Gifts of Charitable Life Insurance
• Mike & Anita, age 65, concerned with amount of tax owing in their estate
• Want to preserve their estate for their family but also provide a Charitable Gift
• Have sufficient retirement income from• RRIFs, • Work Pensions, • CPP, and OAS
• Have designated $120,000 to their charity which is set aside in T-Bills
• RRIFs total $300,000 between them• Potential tax liability of $139,230.00 on RRIFs
• Want to re-structure their affairs and look into alternative ways of charitable gifting
Present Situation
RRIF$300,000
Family
$83,538 taxes
T-Bills$120,000
Tax onAnnual interest
Tax receipt for $120,000
$216,462 after tax to
heirs
Gifts of Charitable Life Insurance
• Enhanced Bequest and their estate preserved with a “Joint-2nd-to-die” estate Universal Life insurance plan.
• Perform an “Asset Shift” by moving the $120,000 over 5 years into the estate Universal Life insurance plan • Redundant assets are moved from a taxable environment
to a tax-sheltered environment• Estate value is instantly magnified• Tax free transfer of assets
• Rearrange Beneficiary Designations
New Situation
Life Insurance$300,000 Tax Free
Family
$0 taxes
RRIF$300,000
$120,000 T-Bills
Tax-Free after Donation receipt
Tax receipt for $300,000
Gifts of Charitable Life InsuranceNew Situation • Amount left to family
increased from $216,462 to $300,000
• Amount left to Charity increased from $120,000 to $300,000
• Amount left to CRA decreased from $83,538 to $0
To F
amily
To C
harit
y
To C
RA
0
50000
100000
150000
200000
250000
300000
Before After
Creating a Legacy:Life Insurance & Charitable
Gifting
John Jordan, CFPInsurance & Estate Planning Specialist
What…Insurance? Annuity? At my Age?
Life Insurance
Great idea if you die next week
Lousy idea if you live to age 100
Annuity
Great idea if you live to age 100
Lousy idea if you die next week
Insured Annuity
Capital is replaced, tax-free, probate
free, immediately and privately.
Tax-efficient, or even tax-free
income for life, guaranteed.
Gifts of Charitable Life Insurance• Marie is a healthy 74 year old widow• Retired Teacher• Gives $5,000 annually to charity• Has designated her RRIF (approx. $200k at mortality) and
$350,000 to charity in her Will with balance of estate to heirs ($1.6MM net worth)
• Marie’s Wish List1) Would like to increase annual charitable giving (additional
$5,000) without affecting income2) Doesn’t want to incur risk with investments3) Wants to keep a portion of GICs for future liquidity4) Wants to keep estate in tact for heirs
Gifts of Charitable Life Insurance• Income comprises:
• Teacher’s Pension• Interest income - $500,000 of GICs (3.00%)
• RRIF• CPP• OAS is clawed back• Total Gross income - $107,022.15• Tax Payable - $32,201.86• After Tax Income - $74,820.29
Current Status
$350,000GIC
Annual Income$10,500.00(3.00% annual interest)
Tax$4,558.05
Annual after Tax Income
$5,941.95(43.41% marginal tax rate)
ESTATE
ProbateLegal
ExecutorAdministration
In the Estate…
$350,000 Donation Receipt
Gifts of Life InsuranceLiquidated
$350,000GIC
$16,199.00 payments to charity for life insurance
Deposit to prescribed life
annuity$350,000.00
Annuity
Annual Income$28,888.80($2,171.16 taxable)
Before After
Total Gross Income $107,022.15 $127,582.11*
Total Tax Payable ($32,201.86) ($20,268.44)
Total After Tax Income $74,820.29 $107,713.67
Less Annual Insurance Premium ($16,199.00)
After Tax Income $91,114.67
Increase in After Tax Income $16,294.38
Equivalent Return on $350K GIC 11.23%
*$98,693.31 taxable income
Annual Premiums
$16,199.00 Donation Receipt
$350,000 Death Benefit
$350,000 Life Insurance PolicyIrrevocably Gifted
Tax
Did We Achieve Marie’s Goals?
1) Would like to increase annual charitable giving (additional $5,000) without affecting income• Increased after tax income by $16,294.38
Yes No
2) Doesn’t want to incur risk with investments• Insured annuity – no investment risk
4) Wants to keep estate in tact for heirs• All estate values are kept in tact for heirs through
insurance and other assets
3) Wants to keep a portion of GICs for future liquidity• Still has $150,000 in GICs
Creating a Legacy:Life Insurance & Charitable
Gifting
John Jordan, CFPInsurance & Estate Planning Specialist
Case Study
• Bill & Jane are retired school teachers in their early 70s
• Both have good pensions, CPP, OAS payments, and investment income.
• Have just started taking the minimum on their RRIF• Have an income property and about $300k in an open
investment account• Open investments will continue to grow as they are
not needed for lifestyle• Projected tax liability at mortality (excluding income
property) is just over $100,000• No Charitable Intentions in their estate, but after
discussing estate benefits and asset preservation, they wanted to look into what could be done.
Case Study
• Insurance plays a significant role in the estate planning process• $300,000 Joint Last to Die
• Re-arrange beneficiary designations on RRIF• Provide direction to executors in the estate to gift the
amount necessary to bring taxable income to (or close to) $0