The Planned Giving Primer with Robin Morton
Life insurance is commonly seen as a safety net that will provide for your dependants in the event of your death. But there is another valuable way of using a life insurance policy: donating it to the charity of your choice. Robin C. Morton, a Chartered Life Underwriter with Kelson Financial, is a member of the McGill University Health Centre Foundation’s Planned Giving Committee. In this interview, he explains the advantages of making a gift of life insurance.
Is giving my life insurance to the MUHC Foundation complicated?
Not at all. The ways in which you can contribute a life insurance policy to a charity are easily accomplished:
- One common option is to purchase a new policy and name the MUHC Foundation as the beneficiary and owner of the policy. Your payment of annual premiums would represent a charitable donation eligible for a tax credit.
- A second possibility is to purchase a new policy, name your estate as the beneficiary, and indicate in your will that a gift of an amount equal to the pol-icy’s death benefit be paid to the MUHC Foundation. In this case, you retain control of the policy throughout your lifetime while a charitable receipt for the value of the donation is issued at your passing.
- Another alternative is to arrange a new policy that names the MUHC Foundation as beneficiary. This would result in a charitable tax receipt in the year of your death, and you would retain control of the policy during your lifetime.
- Lastly, you can make a gift to the MUHC Foundation of an already existing life insurance policy that is no longer needed for its original intent. The net cash value and future premiums paid will qualify for the charitable tax credit. The tax implications of this gift are slightly more complex and may vary depending on the size of the policy, but your financial advisor can provide a more detailed analysis.
How does making a gift of life insurance benefit the MUHC Foundation?
The great advantage of gifting life insurance is that it allows individuals to make a much more generous donation than they might otherwise be able to afford. For many donors, bequeathing $50,000 through their will to a charity represents a weighty contribution. Through the drawn-out payments of a life insurance policy, however, those same donors could make a gift of five times that amount. This type of giving represents a wonderful opportunity for donors to make a major contribution to a once-in-a-lifetime project like the redevelopment of the MUHC.
How will I benefit from giving my life insurance to the MUHC Foundation?
If you name the Foundation as the beneficiary of your life insurance policy, you can benefit in one of four ways:
- Because the MUHC Foundation is a charitable organization, you will qualify for a tax credit in the amount of the premium payments you have made if the Foundation is named as benefici-ary and owner of the policy;
- The death benefit paid upon your passing will qualify as a tax credit on your final income tax return;
- Because you des-ignated a direct beneficiary, the life insurance death benefit doesn’t have to pass through your estate; and
- Your estate can then claim a charitable donation tax credit for the proceeds of the policy that can offset income taxes payable on your terminal tax return.
You can also consider your insurance policy as “capital replacement.” If you make a large capital gift to a charity during your life, your estate effec-tively loses the value of that gift. This “lost” capital can, however, easily be replaced by a policy of an equal amount paid for through relatively modest annual premiums. The tax savings generated by your capital gift could be used to fund an insurance contract payable to your estate. The MUHC Foundation is also developing appropriate recognition opportunities for those who donate life insurance.
How do I know if this type of vehicle is right for me?
If you have a life insurance policy that is no longer needed to secure the financial future of your heirs, naming the MUHC Foundation as the beneficiary and owner of the policy can help you offset taxes while turning your legacy into an exceptional gift to your community. As with any planned giving decision, it is best to discuss the details with a financial professional. To speak to one of our specialists, contact Dolly Shinhat‑Ross at 514-931-5656.
