Life Insurance / RRSP's and RRIF's
Life insurance, RRSP's and RRIF's are an economical vehicle for giving a larger and more lasting gift to a charity than might otherwise be possible, without substantially drawing on your assets now or depleting your estate.
There are several ways of leaving a legacy using life insurance. By giving through life insurance, you can make a significant future gift with only a small annual or monthly outlay.
Life insurance is a particularly effective gift because of the leveraging effect. Since it is not included in the probate of your Will, there are no probate fees and your gift may go to work at the charity for you quickly. You may also use an insurance policy to replace a cash gift that you make today. If you choose to make a large cash donation to a charity now, a policy can be used to replace those assets in your estate and your gift will earn tax credits, which can be spread over six years.
What to Do
There are four ways to give:
- Assigning an existing policy to the charity (the charity becomes the owner and beneficiary);
- Purchasing a new policy with the charity as owner and beneficiary;
- Naming the charity as the beneficiary (but not the owner) of a new or existing policy;
- Designating a charity as the beneficiary of your life insurance policy through your Will.
The tax savings are different for each strategy.
If you permanently assign an existing policy to the charity, you will receive a tax receipt for the fair market value of the policy at the time when you assign the policy and, if premiums are still payable, you will also receive tax receipts for all premiums you continue to pay for the policy.
If you purchase a new policy with the charity as owner and beneficiary, you will receive a tax receipt for all premiums you continue to pay for the policy.
Naming the charity as a beneficiary, but not the owner, of a policy will result in a tax receipt being issued for the amount of policy proceeds received by the charity at the end of the policy and therefore a tax credit that can be used in your final tax return. A tax receipt will not be available for premiums paid for the policy during your lifetime. The tax result will be the same in the case of naming a charity as the beneficiary of a life insurance through your Will. In such a case, however, to ensure that the results will be as you intended, please consult with your insurance company as well as your financial and legal advisors to ensure that the clause in your Will can meet your intentions.
Benefits to You
- You receive a tax receipt, significantly reducing the cost of the premiums (provided that the charity is the owner and beneficiary of the policy).
- You can make a significant gift through relatively small amounts being paid (as premiums) over several years.
- Your gift doesn't reduce the amount of money in your estate available to your family.
RRSPs or RRIFs
Gifts of retirement plans are made when you name a registered charity of your choice as the designated beneficiary. This means that upon your death the charity would receive the proceeds and your estate will receive a charitable receipt. This receipt will counterbalance the tax payable on your final tax return, in effect transforming final tax liabilities you have when you die into a charitable gift.
It is recommended that you consult with the financial institution holding your RRSP/RRIF to ensure that it permits the designation of charities as beneficiaries.