1. Creating a Legacy: Life Insurance & Charitable Gifting John Jordan, CFP Insurance & Estate Planning Specialist

2. 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

3. 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!

4. …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…”

5. 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

6. Present Situation RRIF $300,000 Family $83,538 taxes T-Bills $120,000 Tax on Annual interest Tax receipt for $120,000 $216,462 after tax to heirs

7. Gifts of Charitable Life Insurance Enhanced Bequest and their estate preserved with a “Joint-2 nd -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

8. 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

9. Gifts of Charitable Life Insurance New 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

10. Creating a Legacy: Life Insurance & Charitable Gifting John Jordan, CFP Insurance & Estate Planning Specialist

12. 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.

13. 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 List 1)Would like to increase annual charitable giving (additional $5,000) without affecting income 2)Doesn’t want to incur risk with investments 3)Wants to keep a portion of GICs for future liquidity 4)Wants to keep estate in tact for heirs

14. 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

15. Current Status $350,000 GIC 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 Probate Legal Executor Administration In the Estate… $350,000 Donation Receipt

16. Gifts of Life Insurance Liquidated $350,000 GIC $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) BeforeAfter 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 GIC11.23% *$98,693.31 taxable income Annual Premiums $16,199.00 Donation Receipt $350,000 Death Benefit $350,000 Life Insurance Policy Irrevocably Gifted Tax

17. 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

18. Creating a Legacy: Life Insurance & Charitable Gifting John Jordan, CFP Insurance & Estate Planning Specialist

19. 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.

20. 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

22. Creating a Legacy: Life Insurance & Charitable Gifting John Jordan, CFP Insurance & Estate Planning Specialist