This toolkit, developed by Community Foundations of Canada, provides a full range of information and tools to help you in your work with clients, and to learn more about community foundations.
Ways to Give
Life Insurance
A charitable gift funded with life insurance allows the donor to make a large gift at death through the payment of relatively small premiums during his or her lifetime. Your client may contribute a life insurance policy currently owned or purchase a new one as a gift.
Unlike donations made through the will, life insurance is not a matter of public record and hence, the gift may be kept confidential. A waiver of premiums may be included in most policies (for a modest additional payment) to ensure that, in the event of your client's disability and inability to pay the premiums, the charitable intention under the policy can still be completed.
At Hamilton Community Foundation, donors of gifts funded with life insurance are recognized for their generosity during their lifetimes, and their decision to fund a legacy gift will likely reflect positively on surviving family members for generations.
The proceeds realized by the Foundation on the death of a donor may be used to establish a permanent named fund (note: minimum gift requirements apply) and this fund may bear the name of the donor, his or her family or other entity provided that all applicable criteria are met. We are pleased to work with the donor during their lifetime to ensure their wishes are known and documented.
Options in Planning a Gift of Life Insurance
Gifts of life insurance can be structured in a number of ways. Each option has particular benefits and requirements, so it is important to make a careful assessment with your financial advisor to determine the most advantageous structure for your personal financial circumstances.
In each option:
- The donor can either buy a new policy or redirect the benefits of an existing one.
- Policies may be for a single life of in the case of a couple, on a "last to die" basis.
Naming the Community Foundation as beneficiary can be done either directly or indirectly.
- Direct Beneficiary. Name the Community Foundation as the beneficiary of the life insurance policy
- Indirect Beneficiary. Name the individual's estate as the beneficiary of the policy. Then the individual's Will directs that a charitable gift equivalent to the life insurance benefit realized by the estate, be directed to the Community Foundation.
1. The Community Foundation as Beneficiary (But not Owner) of the Life Insurance Policy
In this case, the individual's estate receives a donation receipt for the amount of the proceeds received by the Community Foundation. The donation tax credit can be used to affect taxes owing on the final income tax return of the insured individual.
As a result, this strategy can help leave estate assets intact for the benefit of surviving family members.
2. The Community Foundation as Owner and Beneficiary of the Life Insurance Policy
In this case, the Community Foundation is irrevocably named as the owner of the policy.
The individual receives a donation receipt each year for the premiums paid which can be used to offset income taxes from year to year. If the gift is made using an existing policy, the Community Foundation will also provide the donor with a donation receipt for the current cash value of the policy (if any.)
Other Gift Planning Opportunities Using Life Insurance
There are a number of ways in which life insurance can be used in planning for a gift to the foundation. Wealth or asset replacement strategies may allow an individual to gift appreciated property today to reduce taxes and leave tax-free life insurance proceeds to heirs tomorrow in place of such assets.
Purchase a commercial annuity whose payments fund a life insurance policy owned by the Community Foundation. The donation receipt for the annual insurance premiums helps reduce the tax on the annuity cash flow.
Both the community foundation and the donor's advisors will want to think through (and be comfortable with) the financial implications of any such arrangements. In all cases, the objective is to produce a better financial result for the donor and the foundation than would otherwise be the case.
We always recommend that everyone consult with their legal and financial advisors before entering into any contractual obligation.
To explore the potential of such gift arrangements, we invite you or your advisor to contact the Foundation office at any time for more information