A gift of life insurance can provide a significant future gift to the Foundation at a modest present cost to you. This can be done with an existing policy or a new one.
You may give the death benefit of an existing policy just by naming the PPCLI Foundation as beneficiary. But to receive a current tax benefit, you must also transfer the ownership of the policy to the Foundation. This entitles you to a donation receipt for its cash value. When you make the Foundation the owner and beneficiary of a new policy, you receive a donation receipt for each of your premiums. When you die, the PPCLI Foundation receives the proceeds of the policy.
There are several ways to make a future gift to charity through life insurance, and all provide a significant future gift at a modest present cost to you. You can contribute a policy you already own but no longer need, or purchase a new one as your gift.
If you have a life insurance policy that exceeds your current needs — for example, if your children are grown and you no longer need to provide for their financial security — you can make a future gift by naming a charity as the beneficiary of that policy. If you make the charity both the owner and beneficiary of the policy, you will be entitled to a charitable donation receipt for its value (normally the cash surrender value). Any premiums you pay after you assign ownership of the policy to the charity are eligible for a charitable donation receipt. The premiums can be paid directly to the insurance company or by gift to the charity, which in turn will pay the premium.
Similar benefits apply to a new insurance policy: if you make the charity the owner, each premium you pay (directly or via gifts to the charity) entitles you to a charitable donation receipt. (If you stop paying premiums, the charity may continue them or elect a paid-up policy for a reduced amount.)
Ken M., age 48, has some discretionary income but cannot afford to contribute any capital to the Foundation. He purchases a new life insurance policy with a face value of $50,000, names the PPCLI Foundation as owner, and pays annual premiums of $1,800 for five years. Each year he receives a donation receipt for the premium paid. His tax credit is $828 (46 percent), so his out-of pocket cost to ensure a future gift of $50,000 is only $4,860 ($972 per year for five years).
Naming the Foundation as beneficiary
Another way to make a gift with life insurance is to name a charity as beneficiary of a policy, while you retain ownership. This option is preferable for donors who wish to have access to the cash value of the policy during their lifetimes, or to be able to substitute a different beneficiary if their circumstances change. At death, the estate will be entitled to a donation receipt for the amount of the proceeds, yielding a credit to be applied to the donor’s final tax return.
Replacing donated assets
Life insurance can be part of your charitable planning even if you do not give a policy or its proceeds to charity. Many people who set aside some of their assets for charity use life insurance to replace the value of those assets for their heirs.
A couple in their 60s contribute $100,000 cash to the Foundation for an endowment in their names. During the two years they take to report their contribution (maximum of 75 percent of net income per year), their tax savings total $50,000. They use $25,000 of the tax savings to pay up a life insurance policy on the husband’s life, naming their children as the beneficiaries. As a result, the Foundation receives $100,000 now, their children receive $100,000 in the future, and they keep $25,000 that otherwise would have been paid in taxes.
Life insurance can help you make a truly generous gift at an affordable cost. As with all charitable gifts, if you are considering using life insurance in your gift and estate planning you should consult your financial or legal advisor as to which option is appropriate for your situation.
The Many Lives of Life Insurance
Life insurance is a simple idea that takes many shapes. Its basic purpose, of course, is to provide cash to meet the needs of survivors at the insured person’s death, and all policies provide this benefit. However, life insurance policies may also build up cash value that can be utilized for a variety of purposes. A particular policy may be intended primarily for protection through its death benefit, or it may be designed more for investment purposes through increasing cash value.
Some general types of policies
Term life maximizes the death benefit payable if the insured dies within a specified time, but it accumulates no cash value. Because it offers the most affordable protection, it is often the choice of young parents primarily concerned about security for their family in case of an untimely death.
Whole life combines a death benefit with predictable cash value growth. Normally the premium and death benefit are fixed, and the cash value grows according to a predetermined schedule. It provides family protection but may also be used as a savings plan for such expenses as children’s education.
Universal or variable life. These policies place greater emphasis on growth. The premium and/or the death benefit may change, and growth in the cash value will depend on investment performance. Premiums may continue throughout life or end when sufficient reserves are accumulated to sustain the policy. Large initial premium deposits may render future premium payments unnecessary.
Any of these policies can fill an important niche in one’s financial plan. As time passes, however, its original purpose may become less important. As children grow up and we accumulate other resources, the need for family protection decreases. Policies purchased to provide cash for estate settlement are less needed since the Succession Duty and Estate Tax have been repealed. Policies with a face amount that seemed large in pre-inflation days may seem insignificant today.
New ways of looking at life insurance
As time goes by, our priorities change. We find ourselves wanting to share our good fortune with those around us, to show our support of the causes and institutions we believe in, to leave the world a little better than we found it. When goals such as these take shape, the life insurance policy that served us well in years gone by can serve us in an entirely new way when we make a charitable gift. In other cases, a new policy can be the key to achieving philanthropic goals. Here are some possibilities:
Give the death proceeds.
Marvin F. no longer needs the $25,000 death benefit from the policy he took out years ago when his family was young. So he decides to have the For the Soldier Legacy Fund endowment of the PPCLI Foundation receive the proceeds payable at his death. When he dies, his estate will receive a donation receipt for the amount of the death benefit, resulting in significant tax savings on his final return. If the donation receipt exceeds 100% of his income in that year, the excess can be carried back to the previous year, and the 100% limitation will apply to that year’s income as well.
Give the policy itself.
Phil B, age 75, had almost forgotten his paid up $50,000 policy until he began thinking about establishing an endowment with the Foundation in memory of his wife. He depends on the income from her other investments, but the insurance policy makes an ideal gift. Because she makes the Foundation the beneficiary and also the owner of the policy, his gift is irrevocable, and he receives a donation receipt for the cash value of the policy, creditable up to 75 percent of his income (excess credit may be carried forward up to five years). Phil's policy is paid up, but if premiums were still owing and he continued to pay them, he would receive donation receipts for those payments as well.
Give a new policy.
John S., in his mid-40’s, would like to make a significant gift to the Foundation. He has no existing policy or assets to contribute but he does have some discretionary income, so he purchases a new $40,000 policy naming the Foundation as both owner and beneficiary, and pays for it in five annual payments of $1,200 each. He receives a donation receipt for each payment and, assuming a combined federal/provincial tax credit of 48 percent, his annual tax saving is $576. Thus his “net cost” for each premium is $624, and he makes a $40,000 future gift for only $3,120.
Some planned gifts pay you back by providing you income or allowing you to enjoy the use of your property even after it has been contributed to the Foundation.