charitable giving and estate planning
TRANSCRIPT
Vision without action is a dream. Action without vision is simply passing the time. Action with vision is making a positive difference. ~ Joel Barker
Why is Estate Planning Important
Did you know that due to lack of planning, your estate may be subject to substantial taxes on death?
Often, what individuals thought they were leaving to family or others, is reduced by as much as 30-50% due to lack of planning
It is relatively easy to change this picture
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Estate Planning1. Planned Giving Strategies
2. Introducing Family Members to Charitable Giving
3. Education, information, personal touch
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Planned Giving
• Ensures the work most important to you continues after you are gone
• Means your wish creates a legacy to the cause(s) you care about
• Provides a tax advantage now or at your death
• Dovetails with your estate plans and concerns for heirs
• Compliments your lifestyle goals
• Generates interest from other family members in charities
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Planned Giving Strategies1. Leaving a Legacy
2. Tax protection
3. Charitable Gift Annuities
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Leaving a LegacyIndividual Profile:
• Is currently donating to a registered Charity and desires to give more and/or
• Is an individual with charitable bequest presently in the Will
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Leaving a LegacyDonation of Life Insurance:
• purchase a life insurance policy and name a charity as the owner and the beneficiary (or change existing policy)
• Donor pays the policy premium
• Charity issues a donation receipt for amount of premiums paid which can be used on your tax return to reduce the amount of tax you pay
• Charity then receives the insurance proceeds when you die
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Leaving a LegacyExample Alice:
• regular annual donation of $5,000 to her charity
• now pays $2,000 cash donation per year directly to her charity
• $3,000 (age 50, non-smoker) per year premium on an insurance policy
• The charity is the owner and beneficiary of the policy
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Leaving a LegacyThe comparison is over a 30 year period (to Alice’s age 80)Option 1:DONATE DIRECTLY TO CHARITY
Donate $5,000 to charity for the next 30 years:
Annual Charitable Donation = $5,000 Annual out of pocket cost = $5,000
Charitable cash donations over 30 years = $150,000
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Leaving a LegacyOption 2: DONATE SOME TO CHARITY TODAY AND SOME AT DEATH Donate $2,000 to charity for the next 30 years and
purchase a life policy that costs $3,000 annually for the next 30 years
Annual Charitable Donation = $5,000 Annual out of pocket cost = $5,000 Charitable cash donation over 30 years = $60,000 Charitable donation at death = $400,000 Total donation over 30 years = $460,000
**based on a policy with face value of $400,000**source: Manulife Financial
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Tax ProtectorDonor Profile:
Individual with assets that will incur substantial taxes in the estate.
Individual with charitable bequest presently in the Will
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Tax ProtectorDonation of Life Insurance
• you purchase a life insurance policy and name a charity as the Beneficiary
• you continue to pay the policy premium and the charity issues a charitable tax receipt for the amount of the policy at death
• this receipt can be applied to the final tax return or carried back to the previous year
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Tax Protector-ScenarioDonna & Dave, age 55, two children
• $400,000 in registered assets and they presently give to charity
• Upon the second death there will be a $200,00 tax bill triggered
• Purchase permanent insurance, which you own and name the charity as beneficiary
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Tax ProtectorCurrent Situation on the second death
RRIF $400,000Estate Tax Due
$(200,000)Net Estate To Children
$200,000
Charity Donation $0
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Tax ProtectorProposed Situation
RRIF $400,000 Estate Tax Due
($200,000) Total Insurance Premium
($57,667) Charitable Tax Receipt
$200,000 Net Estate to Children $342,333
Insurance Donation to Charity $400,000**$400,000 face value policy, premiums based on current age**source-Manulife Financial
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Charitable Gift Annuities• An attractive option for donors wishing to
make a planned gift to charity
• Gift vehicle for middle-class donors age 70 or older who are charitable, but cannot afford to relinquish income from capital
• Provides the donor with a guaranteed level of income for a set number of years, or for life
• provides an immediate gift to charity, all from the same capital source 17
How Charitable Gift Annuities work
• Donor gives a lump-sum to a charity • Charity will provide a fixed amount of income back to the
donor over a specified term or for life• Charity typically can use the lump sum donation to
purchase an annuity from an insurance company • Donor receives a tax receipt equal to the amount
donated less the cost of the annuity• Donor is taxed on the interest portion of each annuity
payment received• Difference between the cost of purchasing annuity and
the amount of the original donation is than set aside for the charity’s immediate needs
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Charitable Gift Annuities-Benefits• Donor receives an immediate donation receipt
• Charity gets the use of donated funds immediately
• Allows donor to give during their lifetime rather than postponing the gift until after death
• Only a portion of each annuity payment is taxable in the hands of the donor (may be no taxable portion of the annuity depending on age)
• After tax impact can be huge for donor
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Introducing Family Members to Charitable Giving
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Family Giving• Assists with complex generational cohesion
• Complex family cohesion
• Provides a non confrontational way of bridging diverse family members
• Transparency yields dividends
• Families that discuss gifting have a common goal, common sense of purpose
• Greater transparency lends itself to increased family pride and cohesion
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Our Approach as AdvisorWe are good listeners
◦What exactly is the donor wantingEducation
◦What are the optionsInformation sharing
◦Are we all on the same pagePersonal Touch
◦One size does not fit all
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Support for Donors• Problem solving approach
• Complex family dynamics often rule
• Requires a kid gloves, high touch approach
• The common enemy is CRA and poor family dynamics
• Overcome with tact, diplomacy and good coaching
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Planned Giving Strategies-SummaryStrategy 1.Leaving a legacy
2.Tax protection
3.Charitable gift annuities
4.Family members
5.Education
Mechanism
Donation of Life Insurance
Donation of Life insurance
Annuity
Overcome negativity
Kid gloves, personal touch 24
