Gifts of Life Insurance
Life insurance policies offer flexible and creative ways to make charitable donations to AST. It is important to remember when planning the use of an insurance policy for charitable purposes to consult with your insurance advisor and AST.
Gift of an Existing Insurance Policy
Many people own life insurance policies that were purchased years ago to protect family members in the event of their death. Today their circumstances have changed. Perhaps the beneficiary of the policy has died or the children are now adults on their own. While the policy is still valid it is no longer required for the original reason.
The cash surrender value of the policy can be used to make a gift by transferring ownership of the policy to the Atlantic School of Theology. A tax receipt is received for this value. With some policies there may be a taxable gain. However, the tax credit will more than offset the tax owing.
Francine age 70, purchased an $8,000.00 insurance policy 40 years ago naming her husband Lucas as beneficiary. Lucas died 10 years ago. The policy is fully paid with a Cash Surrender Value (CSV) including dividends of $ 10,000. Francine decides to donate the policy to AST. She receives a tax receipt for the CSV.
Gift of a Specially Designed Life Insurance Policy
When ownership of a policy is transferred to the Atlantic School of Theology any premiums paid are considered to be a charitable donation for which you receive a tax receipt. The resulting tax credit greatly reduces the cost of the eventual gift which can be many times the actual premium cost. Life insurance can be a great way to establish a future endowment fund.
There are many types of insurance products available some of which are described below.
Sometimes parents are reluctant to make a major gift because they do not want to diminish the legacy to their children. One strategy is to purchase a life insurance policy with a face amount equal to the amount contributed to AST, with their children named as beneficiary. The policy payable at the death of the parents, replaces the asset that had been removed from their estate through the donation. In some cases the policy can be paid for entirely by the tax credit from the original donation.
Some donors have purchased a life annuity to increase their after tax cash flow and used a portion of this increase to pay the premiums on a charitable policy assigned to AST. A charitable tax receipt is issued for the premium amount thereby reducing the annual cost of this policy.
Depending upon the age of the donor there could be enough cash flow generated from the annuity to purchase a second policy in favour of your heirs, providing a second legacy.
Gift of a Specially Designed Life Insurance Policy – Examples
Simon is 54. He purchases life insurance for $100,000. It is arranged so this plan will be fully paid for after only 14 years. The premium is $2,191 per year but because the Foundation owns the policy a tax credit of $1,000 is generated. Simon’s out-of-pocket cost to greatly benefit AST is only $1,191 per year for 14 years.
Joyce, age 70, can benefit AST through the purchase of a $25,000 insurance plan. The tax credit receipt reduces Joyce’s tax payable resulting in a net outlay of only $326 per year to establish a future gift of $25,000.
Melvin’s financial advisor determines that on his death a tax bill of $250,000 will be owed. He is now age 55. Melvin would rather have funds go to the Atlantic School of Theology than Canada Revenue Agency through taxes. He therefore buys $500,000 of life insurance with a cost of $7,600 annually, and names AST as beneficiary. Upon Melvin’s death the $500,000 goes to AST tax free; the resulting tax credit is used to eliminate his tax bill.
Please note: The above are for illustration only. Insurance rates will vary depending upon products used and your personal circumstances. You are encouraged to consult with your own advisors.
For further information please contact the Advancement Department.