Some weeks ago I met with a client who wanted to leave some money to his church. He heard that he could leave a charitable donation through life insurance but he was not sure about what options were available to him. He was also curious about the benefits of each option.
Many of us give regular donations to churches or charities of our choice. In most cases we donate through direct contribution. We leave cash in an envelope every Sunday, or we write a check to the charity once a year. Life insurance is also a great way to contribute to your church or favourite charity. While there are various ways to donate to a charity using life insurance, in this article I will focus on three specific methods of charitable donation.
Designate your church or charity as the beneficiary of the policy:
This is certainly the easiest and most straightforward way to use life insurance for charitable donation. You simply purchase a life insurance policy and go through the process as you normally would. As opposed to a policy used for family income protection where the beneficiary may be a spouse, a child or some other individual where there is insurable interest, A policy used for charitable giving will designate the beneficiary as the charitable entity. With this method, you maintain ownership of the policy and when you die the death benefit is paid to the charity of your choosing. While the premiums are not eligible for a tax credit, the death benefit is eligible for a tax credit on the policy owners final income tax. The payment to the charity using this method bypasses probate fee’s.
Gifting to your charity by will:
This option is similar to the previous option but requires an extra step. In order to gift a life insurance benefit payment to a charity by will, a policy holder would simply designate their estate as the beneficiary on the policy then add directions in their will to give the proceeds of the policy to their charity of choice. Just like in the previous method premiums are not eligible for a tax credit, but the death benefit payout, being a donation to the charity would qualify your estate for a tax credit on your final income tax return. The only key difference is that with this method the benefit payout is not protected from probate fees because it becomes a part of the estate before being willed to the charity.
Ownership transfer transfer to charity:
Another possible option is to set up the life insurance policy and transfer ownership of the policy to the charity or church as well as [intlink id=”37″ type=”post”]designating them beneficiary[/intlink] while you continue to pay the required premiums. Using this method, the premiums associated with this policy would qualify for a tax credit, however the benefit payout would not qualify for a tax credit because you would not be the policy owner at the time of death. Essentially it would not be considered a donation at that point as the owner and the beneficiary is the church or charity.
So which is the best option for you? Ownership and tax implications are the two factors you must consider before you decide which option is best for your situation. Reach out to me directly and I will guide you through the process of choosing a life insurance policy that fits your unique needs.