You have a big heart. Walking down the street you can’t help but stop and look at the adorable puppies and kittens playing in the window of your city’s animal shelter. You want to round them up and bring them all home to be yours, but the more rational part of your mind knows you don’t have enough space. What you may have though that can help, is an existing life insurance policy that you no longer need. Trash it? You could. Or you could transfer it as a charitable donation and save some puppies and on your taxes!
David Wm. Brow from Advisor.ca shares some strategies to effectively use life insurance policies you no longer need to provide valuable tax deductions while still supporting a cause dear to your heart. One effective way to do this is via policy donation. This is done by changing both the beneficiary and owner of the policy to your favourite charity while you continue as the payor. This allows the premiums you pay to be deducted on your annual tax receipt, which in turn will save you some money. Everybody wins! Another option if you want to donate to a charity, is to name them as a beneficiary on a policy that you still own and pay for. While this does not give you the same tax deductions on ongoing premiums, it still allows you to reduce your estate upon death by the amount of the death benefit. It also ensures the anonymity and privacy of the charity if you do not want others to know about it in the event of a pay-out.
Mark P. Cussen, CFP writing at Investopedia, suggests one more way you can give and still benefit on your taxes. Many life insurance policies grow dividends. These funds, accessible by you as the insured, can be withdrawn and then donated to your charity of choice. The amount donated will of course be tax deductible that following tax year. This allows you to keep the whole death benefit, but still give something back to your community.
Charitable giving doesn't have to benefit the receiver exclusively, it can be good for you as the giver too! These three tax relief strategies through charitable donations can make you think twice before letting your policy lapse when you no longer need the coverage.
1. Policy Donation: Take full advantage of the tax deductions available for charitable giving by fully transferring your policy to a charity while you continue to pay the premiums.
2. Name Beneficiary: Naming your favourite charity as a beneficiary doesn't provide the annual tax deduction from premiums like donating does, but it will reduce your taxable estate upon death by the amount donated and thereby reducing the taxes owing and the corresponding probate and executor fees (which can be quite substantial).
3. Dividend Donation: Some policies have dividends that you can access. Donate these to a charity and you will receive a tax deduction for the amount donated.
Just think of those puppies in that city shelter window! Wherever your generous heart cares to turn, there is a cause that you can help by using any of these strategies. Have any questions? Contact an advisor today to learn more.
Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia. We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”