Using life insurance for charitable donation Give more, pay less! Using life insurance for charitable donation

Be on the lookout… Do you have clients that: Don’t have debts or financial dependants; or Regularly make charitable cash donations; or Volunteer for one or more organisms; or Care deeply about a charitable cause; or Are older; or Have disposable income. If one or more of these points are applicable, you should think about discussing planned giving.

What is planned giving? It’s a process to help the donor make larger charitable gifts while maximizing his benefits and/or minimizing the impact on his estate. Charitable gifts can be made during the lifetime of the donor or upon death as part of the estate plan.

Canadians are generous! In 2010, 84% of Canadians over age 15 made a financial donation (same as in 2007). Total of $10.6 billion donated in 2010. Donors who planned their donations in advance and supported the same organizations repeatedly over time give significantly more than those who do not. Source: “Caring Canadians, Involved Canadians: Tables Report 2010”, Statistics Canada

Where does the money go? Organizations Money Donors Religious 46% 36% Health 15% 56% Social Services 9% 39% International 6% Hospitals 18% This table gives you an idea of what types of registered charities benefit from donations of Canadians. The distribution of “Donors” totals more than 100% as one donor may contribute to more than one category of charity. Source: “Caring Canadians, Involved Canadians: Highlights from the 2007 Canada Survey of Giving, Volunteering and Participating”, Statistics Canada

It Pays to Give! Charitable giving is a win-win proposition for both the charitable organization and the donor. The federal and provincial governments offer incentives to Canadian taxpayers for charitable donations in the form of tax credits.

Federal Tax Credits Every province and territory except Québec First $200 donation: 15.00% Donations above $200: 29.00% Québec* First $200 donation: 12.53% Donations above $200: 24.22% As you can see, the amount of the tax credit is independent from the donor’s income level. So, even if the donor is not in the top marginal tax bracket, he will still get a tax credit equal to the top marginal tax bracket for donations above $200. * The tax value of the federal credit is the sum of the federal credit less the 16.5% abatement for Québec taxpayers.

Provincial and Territorial Tax Credits   Federal Credit Provincial / Territorial Credit Up to $200 Over $200 Alberta 15.00% 29.00% 11.00% 21.00% British Columbia 5.06% 14.70% Manitoba 10.80% 17.40% New Brunswick 9.68% 17.95% Newfounland and Labrador 7.70% 13.30% Northwest Territories 5.90% 14.05% Nova Scotia 8.79% Nunavut 4.00% 11.50% Ontario 5.05% 11.16% Prince Edward Island 9.80% 16.70% Québec 12.53% 24.22% 20.00% 24.00% Saskatchewan Yukon 6.40% 12.80% In addition to the federal tax bracket, each province and territory offers a tax credit as well. The total tax credit for amounts above $200 varies from 40% to 50%. http://www.cra-arc.gc.ca/chrts-gvng/dnrs/svngs/clmng1b3-eng.html

How much can you claim? Donations can be claimed for tax credits in the year they were made or any of the following five years. The maximum amount of donations that can be claimed in a year is 75% of the donor’s net income. The maximum amount of donations that can be claimed in the year of death or the year before is 100% of the donor’s net income.

How can you help your client? Life insurance is a great tool for planned giving. A donor gets to give much more than what he or she pays out-of-pocket. Possibility to structure the life insurance policy so that the tax credit is based on the benefit paid upon donor’s passing or on the premiums paid during the lifetime of the donor.

Give more, pay less! Example MNS 50 years-old Wants to contribute to his favourite charitable organization. Chooses to give through a life insurance – ParPlus 20-pay (enhanced option guaranteed to age 100) with a $50,000 face amount. Annual premium: $1,300

Give more, pay less! $50,000 Charitable Donation: ParPlus 20-pay Cumulative Premium $26,000 After taking tax credits into consideration, the net cost will be even less for the same amount of donation. And that’s before considering the tax credit associated with the donation!

When do you want the tax credit? Option 1 Following death, on the final income tax return. Benefits the estate who is responsible of paying the income tax on the final return. Option 2 Every year when a premium is paid. Benefits the taxpayer during his or her lifetime.

What can be claimed for tax credit? Option 1 Donor owns the policy, charitable organization is the beneficiary. The life insurance benefit paid to the charity upon the donor’s death can be claimed for a tax credit on the donor’s final income tax return. This strategy helps offset a potential large tax bill upon death following the deemed disposition of the deceased’s assets.

Provincial / Territorial Credit Provincial and Territorial Tax Credits Option 1: Tax Credit on $50,000 Donation   Federal Credit Provincial / Territorial Credit $50,000 Donation Up to $200 Over $200 Tax Credit Alberta 15.00% 29.00% 11.00% 21.00% $ 24,952.00 British Columbia 5.06% 14.70% $ 21,803.80 Manitoba 10.80% 17.40% $ 23,158.80 New Brunswick 9.68% 17.95% $ 23,430.46 Newfounland and Labrador 7.70% 13.30% $ 21,608.80 Northwest Territories 5.90% 14.05% $ 21,480.70 Nova Scotia 8.79% $ 24,947.58 Nunavut 4.00% 11.50% $ 20,207.00 Ontario 5.05% 11.16% $ 20,039.78 Prince Edward Island 9.80% 16.70% $ 22,808.20 Québec 12.53% 24.22% 20.00% 24.00% $ 24,078.62 Saskatchewan $ 21,964.00 Yukon 6.40% 12.80% $ 20,859.20 With this option, the amount of the tax credit can be significant. The maximum amount of donations that can be claimed in the year of death is 100% of net income.

Be careful… Option 1: $50,000 Donation If the amount donated is higher than the deceased taxpayer’s net income for the year of death, the excess donation can be carried back and claimed in the previous year’s income tax return up to 100% of that year’s net income. You should always be aware of the limit applicable to the amount that can be claimed for a charitable tax credit. If the death benefit donated is much higher than the taxpayer’s annual net income, this option might not be the best fit for the client.

What can be claimed for tax credit? Option 2 Charitable organization is the owner and the beneficiary. Donor pays the premiums. Donor receives annual tax receipt for premiums paid in the year. Donor can claim a tax credit for premiums paid. No tax credit for death benefit paid to charitable organization. Usually, the donor will apply for life insurance as the owner. As soon as the policy is in force, the donor transfers ownership of the policy to the charitable organization. The tax receipt for the premiums paid is issued by the charitable organization, not the insurer.

Provincial and Territorial Tax Credits Option 2: Annual Premium $1,300   Annual premium of $1,029 Annual Tax Credit Net Annual Cost Total Net Cost (20 years) Alberta $ 602.00 $ 698.00 $ 13,960.00 British Columbia $ 520.82 $ 779.18 $ 15,583.60 Manitoba $ 562.00 $ 738.00 $ 14,760.00 New Brunswick $ 565.81 $ 734.19 $ 14,683.80 Newfounland and Labrador $ 521.70 $ 778.30 $ 15,566.00 Northwest Territories $ 515.35 $ 784.65 $ 15,693.00 Nova Scotia $ 597.58 $ 702.42 $ 14,048.40 Nunavut $ 483.50 $ 816.50 $ 16,330.00 Ontario $ 481.86 $ 818.14 $ 16,362.80 Prince Edward Island $ 552.30 $ 747.70 $ 14,954.00 Québec $ 595.48 $ 704.52 $ 14,090.40 Saskatchewan $ 536.00 $ 764.00 $ 15,280.00 Yukon $ 502.60 $ 797.40 $ 15,948.00

Give more, pay less! $50,000 Charitable Donation: ParPlus 20-pay Highest Net Cost: $16,330 Lowest Net Cost: $14,000 Because provincial tax credits vary by province and territory, the net cost will vary depending on the residence of the taxpayer. Charitable contribution in this example is more than 3 times the net cost paid in premiums.

Possible Strategy for Tax Credits Instead of claiming your charitable donations annually, consider claiming all donations made over the last 5 years to maximize your tax credit for amounts over $200. To maximise the charitable tax credit, a taxpayer can claim receipts made out in either his name and his spouse’s name. Remember, tax credit rates for charitable donations are not influenced by annual income; they are the same for everybody. The only impact net annual income has is with regards to the maximum amount of charitable donations that can be used to get the tax credits.

Transfer of an Existing Policy It is possible for a donor to transfer ownership of an existing life insurance policy. Charitable organization becomes the new owner and beneficiary; donor continues to pay premiums. Charitable donation receipt in the amount of the cash surrender value at time of transfer will be given to donor. Premiums paid by donor following the transfer will also be considered as a charitable donation. If there’s a policy gain resulting from the policy ownership transfer, that amount is taxable to the transferor. A policy gain occurs if the Fair Market Value (FMV) of the policy (usually its net cash surrender value) is higher than its Adjusted Cost Basis. The policy gain is fully taxable. It is not the same as a capital gain that is only taxed on 50% of its amount.

Life Insurance Products Any permanent life insurance product can be used as a charitable gift: For couples, the joint last-to-die option, when available, will cost less. Go to Assumption Life’s Producer’s Corner for more information on our product line-up! producerscorner.ca or www.assumption.ca

Benefits for Charitable Organization Additional revenue to pursue their work or specific projects. Facilitates long term planning. Larger sums than just cash donations. Obviously, life insurance donations are not usually used for short term needs. However, when the charitable organization is the owner of a policy, they are able to surrender the policy and get the cash value or borrow against the CSV through a policy loan to meet certain short term needs that are not met by cash donations.

Benefits for Donor Substantial contribution for relatively low cost. Significant tax credits. With a new life insurance policy, no impact on estate. Donation is incontestable. Donor is free to choose the charitable organization. Part of their legacy.

Ask Your Clients When you discuss estate planning with your clients, ask them about the charities that are important to them. Offer your help with planned giving. Show them how life insurance gives them the opportunity to give more without changing their budget.

QUALIFICATION PERIOD The qualification period covers a 12-month period, from January 1 to December 31, 2017 inclusively. QUALIFICATION CRITERIA You qualify for the 2018 Convention if: You achieve a net total of 80,000 production credits and place a minimum of 25 production units. Production credits and units can be accumulated through a combination of life insurance policies, new investment contracts (clients) and/or group insurance plans. Results are based on placed premium (not FYC) by December 31, 2017.

Using life insurance for charitable donation Give more, pay less! Using life insurance for charitable donation