Life insurance can be an effective way to help your favourite charity achieve their long-term goals.
Along with tax savings, the benefit of donating a life insurance policy includes the freedom to choose what type of policy and how much premium you pay. Your gift can’t be legally challenged because life insurance is considered separate from your other estate assets.
Donating a life insurance policy isn’t subject to taxes, probate costs or estate debts, and you can make a substantial contribution through relatively small monthly or yearly payments. At the same time, you’ll be rewarded for your donation through the charitable tax receipts you receive. The premiums on a $25,000 policy will cost far less than the payout amount over time, and when you include your tax credits, you end up paying even less overall for a very sizeable gift.
Here are three ways you can donate a life insurance policy to a charity:
- Take out a new policy in the name of the charitable organization. You’ll receive a charitable tax receipt for the cash value of the policy and for any premiums you pay.
- Name the charity as the beneficiary of an existing policy. This is a good option if you already have a policy that your family no longer needs for financial stability. At the time of your death, the charity will receive the policy proceeds and your estate will receive the tax benefits.
- Transfer ownership of an existing policy to the charity and receive a charitable tax receipt for the cash value of the policy. If you owe annual premiums on the policy, you’ll still pay them, but you’ll also receive tax receipts in the amount of your payments.
Leaving long-term charitable gifts in your will
Whatever your age, having an updated will is an important part of estate planning, especially if you want to include long-term charitable gifts.
It doesn’t take much to leave a lasting legacy; if every adult in Canada left $100 in their will, charities could count on receiving millions in donations every year. Whether you choose to give to a large national organization or a local group, donating a life insurance policy can have a great impact on the people or issue your charity supports.
However you choose to distribute your assets, make sure your will clearly spells out your wishes. A will saves your loved ones from struggling through estate complications. Your local Financial Advisor is ready to help with advice on estate and gift planning. Contact them today.