Most people choose to leave their estate assets to their children or heirs at their death, with their will typically instructing the executor to dispose of assets, pay the appropriate tax, and distribute the residue of the estate to the heirs. Individuals or couples with a charitable intention may name one or more charities to receive a gift of the residue of the estate.
While this is a common course of events, under the right circumstances, there’s a better way: Gifting certain types of assets directly to a charity versus gifting cash can reduce tax and make the ultimate gift larger than when a traditional approach is taken.
Money that would have otherwise gone to the tax department is now directed to the charity to continue its good work. The taxpayer’s family has a legacy in the impact of their significant gift.
This guide outlines various ways a gift can be made to charity via a Life Insurance policy, RRSPs, company shares and/or real estate. Each scenario includes a case study, along with a sample financial analysis.
Life Insurance: The Overlooked Impact Tool
Life Insurance has been long overlooked and under-used, in terms of the power it can bring to creating legacy impact capital. There is no other impact instrument that does what Life Insurance does, which is to create capital at death on a tax-preferred basis for pennies on the dollar. There are many different types of products from numerous companies available in Canada. In addition, there is a myriad of permutations or combinations of products and structures that can be combined to achieve the perfect result, whatever that may be.
Traditional approached to buying and selling insurance, however, have only focused on paying tax liabilities at death, and in some cases, reducing or deferring those tax liabilities through creatively structuring the policy within a corporate structure. This approach works very well but is focused entirely on economics and paying tax to preserve family wealth. It does not consider redirecting capital to charitable organizations.
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