Canadian Charitable Giving with Life Insurance
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
Guest Contributor: Peter J. Merrick, TEP
Canadian charitable giving plays a crucial role in the legacy planning of many high-net-worth individuals. When clients and advisors discuss how to incorporate philanthropy into their financial strategy, traditional methods often come to mind: one-time large donations, donor-advised funds, or even establishing foundations. However, life insurance can be a powerful and often overlooked tool in strategic philanthropic planning. Unfortunately, most insurance products aren't inherently designed for this purpose, making them less user-friendly in the context of charitable giving.
Charitable organizations have voiced concerns about traditional insurance offerings, citing difficulties in understanding and utilizing them effectively. In response, efforts have been made to simplify and create life insurance products specifically tailored to facilitate charitable giving.
The resulting approach simplifies the process of charitable gift giving through life insurance. It addresses a common concern shared by both donors and charities: ongoing premium payments. Many donors prefer not to commit to long-term premium payments, while charities seek financial stability and predictability.
This innovative approach offers a single-premium structure. The policyholder makes a one-time upfront premium payment to fully fund the policy, ensuring that the base amount of life insurance remains in effect for the insured person's lifetime. Furthermore, the chosen charitable organization serves as both the owner and beneficiary of the policy, providing them with flexibility and control over the funds.
Over time, the policy accumulates cash value, ensuring that the charitable organization has guaranteed access to these funds during the insured person's lifetime. It's important to note that any withdrawals or unpaid loans from the policy will reduce the charity's eventual payout. The charitable organization can also opt to receive annual dividends as cash or use them to purchase additional insurance coverage, potentially increasing both the policy's cash value and the eventual death benefit.
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Tax considerations are an important aspect of philanthropic giving. Typically, a single-premium life insurance product would be subject to taxation. However, this unique approach designates the charitable organization as the policy owner, potentially mitigating tax implications, as charitable organizations are often exempt from taxation.
The primary goal of this innovative approach to charitable gift giving through life insurance is to simplify the process and remove administrative barriers. Advisors and philanthropic organizations can collaborate to ensure that clients can focus on their charitable goals without being encumbered by paperwork or red tape. In doing so, they empower individuals to make meaningful contributions to causes they care about, leaving behind a legacy of generosity and impact.
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About the author. Peter J. Merrick, TEP, is a Commentator/Keynote Speaker & Expert in US/ Canadian/International Cross Border and Estate Planning and Insurance & Annuity Planning - Author of The Business Novel - The King of Main Street. To read reviews, please click here.
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