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Smart Planning Using Insurance to Fund Charitable Giving
With this strategy , an insurance policy is built to “ fund ” the charitable contribution . It pays out to your estate , and you have a clause in your will directing the charities you ’ d like it to go toward . They give your estate a tax credit — which cancels out the taxes . The net result : a significant donation to your community , your entire estate goes to your heirs , and you ’ ve negated the taxes owing on your death .
Taxable Income ( ex : RRIF )

$ 200,000

$ 200,000 to your estate

TAX CREDIT
Joint Last-to-Die Insurance Policy

$ 127,000

Charitable Giving

$ 127,000

$ 0 Taxes to CRA

If you ’ re married , this tax issue won ’ t come up when the first person dies — everything passes over to the spouse , tax-free . The issue arises when the second spouse passes away . Because of this , we use a tool called a joint-last-to-die ( JLTD ) insurance policy ( if you ’ re single , you use a Single Life Insurance Policy ). Since the JLTD doesn ’ t pay out until the second spouse dies , it costs significantly less than two individual policies .
Other Ways to Give
DONATION
There are other ways to donate to charity too :
1 . Name a charity as a beneficiary in your will ( without insurance funding ) — this will give your estate a tax receipt .
2 . Donate stocks , securities , or mutual fund investments while you ’ re living — you ’ ll get a tax receipt now , and the charity won ’ t pay capital gains on the donated investments .
3 . Name a charity as the owner and beneficiary of a life insurance policy . You deduct the premiums now , and the charity gets the face value upon your death .
4 . Create a charitable foundation and donate to that . Your donations now ( and until your death ) will be a tax deduction , and the foundation will pay out to the charities of your choice every year as long as funds remain .
Where to Start ?
Just this once , start at the end . Look to the end of life and decide if you want to leave a donation that will outlast you . Look at the assets you have saved up . This will be your starting point for your “ tax risk .” From there , decide how much of that tax risk you want to take care of through giving .
Rick Harcourt , PFA , is the Manager for Group and Voluntary Benefits with Capital Estate Planning Corporation — the providers of the ATA Voluntary Benefit Program , a suite of financial services purpose-built for teachers , retired teachers , and nonteaching education staff across Alberta .
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