by Sisi Chakrabarti
Here are some giving strategies which I provided a newly retired couple. Meet Alex (70 years) and Susan (65 years), who have a daughter, Betty (35 Years), married to Tom and have two young children. Alex and Susan came to us for their estate planning and apart from organizing their affairs, they were current donors to a charity for a few years. They have been donating $20,000 annually to a charity of their choice. They wanted to know ways to maximize the impact of their charitable donations; as well as ways to pass on their wealth to the next generation. Here are some ideas:
- Donate life insurance that they no longer need.
Alex and Susan had a $25,000 life policy that they felt they no longer needed and were considering cancelling. Instead, they could donate the policy to the charity with the charity being the owner and beneficiary or just as beneficiary. They may be eligible to claim the premiums on their tax returns now or upon death, based on the structure of the donation. Rather than cancel the policy, they now have the option to build a legacy!
- Amplify impact with life insurance
Amplify impact with life insurance Alex and Susan would like to keep donating the $20,000 annually until both of them pass on. To highlight the impact of the donation of life insurance, consider this scenario: if they donate $20,000 each year for the next 10 years, their total gift amounts to $200,000. Here are two strategies showing how a charity can blend the $20,000 donation into cash and life insurance, highlighting the potential impact: STRATEGY A: The charity keeps $5000 in cash and uses $15,000 to buy an insurance policy. In 10 years the cash component is $50,000 but at life expectancy (assuming age 86), the insurance benefit paid to the charity is $273,000. A total benefit of $323,000 versus a straight donation of $200,000! STRATEGY B: The charity keeps $10,000 in cash and uses $10,000 to buy an insurance policy. In 10 years, the cash component is $100,000 but at life expectancy (assuming age 86), the insurance benefit paid to the charity is $184,000. A total benefit of $284,000 versus a straight donation of $200,000! The Impact of their donations is amplified! If it was you, which would you choose? (Please keep in mind that these are for information and illustration only. Individual numbers may vary. This is to illustrate the effectiveness of the outlined strategies.)
- The not needed CPP
Alex and Susan both receive CPP of $26,000 annually. They’re unhappy with the fact that they don’t have an option to say no to receiving the CPP, and the tax that goes with it! In this strategy, it was suggested that they take the annual CPP and buy a life insurance with the charity as the owner and beneficiary now. This way the tax paid on the CPP income is effectively neutralised. Upon the second spouse’s passing the charity receives a gift of over $800,000 as a legacy gift from Alex and Susan! A simple way to convert taxes into charity.
- Keep the wealth in the family!
Yes,For their registered plans of RRSP and RRIF’s , Alex and Susan are aware of the tax free spousal rollover available upon the first spouse’s passing. Upon the passing of the surviving spouse, their daughter Betty, the designated beneficiary will inherit the balance of the RRIF. Their current RRSP, (which will turn into a RRIF) is at $800,000 for Alex and Susan to draw down during this retirement period for their lifestyle expenses. Let’s assume upon the second passing there was a remainder of $500,000 left in the RRIF, if you thought Betty would receive $500,000 upon Susan’s passing, think again... Betty would receive only $230,000 as the taxes owing would amount to 54% (given the fact that Alex and Susan were in the highest marginal tax rate) in Ontario, would benefit the tax department by $270,000! Alex and Susan were made aware that they could get a joint life insurance policy while they both were alive with Betty as the beneficiary for $500,000, using part of their CPP proceeds. Upon Alex’s passing the RRIF’s rolled over tax free to Susan. The plan was for the second spouse to donate the remainder of RRIF’s in their will to a charity of their choice; so, in this case, Susan donates her remainder RRIF’s to a charity of her choice in her will. Upon Susan’s passing, the estate will receive a tax receipt for the value of the RRIF’s donated and Betty, who was the beneficiary of the life insurance policy would receive $500,000 tax free. This way they keep the wealth, Alex and Susan had so worked hard for, in the family. With this strategy the family was made whole and a substantial donation created to honour their legacy!
- Do I need to inform the charity if I have included them in my will?
While it is not mandatory, it is often recommended to inform the charity if you have included them in your Will. This communication can help the organization plan for the future and express their gratitude for your generosity. Additionally, it provides an opportunity for you to discuss any specific preferences or instructions for your gift.
About the Author: Sisi (He/Him) is a Financial Planner and Master Financial Advisor in Philanthropy with 23 years of experience. He runs a boutique firm in Mississauga, Ontario, focused on Strategic Planned Giving. In 2024, Sisi and AM Strategies launched a Charitable Life Insurance product to simplify and amplify giving. He is a member of several professional organizations, including the Estate Planning Council of Canada. Married to Smita for 34 years, Sisi enjoys traveling and is active in various charities.
Disclaimer: The information shared in this article is for informational purposes only. It does not constitute financial advice or an opinion of any kind, and it does not create a solicitor-client relationship. The information contained in this article is not to be relied on for financial decision-making. If you require financial advice, please seek out specific advice from a financial planner.