Building A Charitable Legacy Using Life Insurance

Designating charity as the beneficiary of their joint life insurance policy allowed David and Anna to model generosity for their children while providing a tax credit for their estate.

As David and Anna settled into the rhythm of retired life, their thoughts turned to the future. They had always prioritized two things – family and charity. They knew there must be a way to support both with their estate but were not sure of the best options. They contacted Abundance Canada for help. 

David and Anna had specific goals for their charitable legacy. Their priority was to involve their family in distributing a gift from their estate. They preferred to give a set amount rather than a percentage of the estate and they wanted the gift distributed over timeso their support could meet the charity’s changing needs. Furthermore, they were keenly aware that the market value of their family cottage had increased significantly over the past twenty yearsThe plan was for their children to sell the property after the last parent had died. The kids all lived out of province and had no interest in owning a cottageHowever, knowing the capital gains tax would be significant to settling the estate, David and Anna wanted to take it into consideration in their overall planning.  

Gifting Life Insurance to Charity 

As we discussed their situation, David and Anna mentioned that they had a joint life insurance policy. They had never really thought of using it for charity but were pleased to hear that designating a donor-advised charitable foundation as the beneficiary of the life insurance policy would allow them to reach their legacy giving goals. 

After discussing the situation with their family, David and Anna named Abundance Canada as the beneficiary of their life insurance policy, and we worked together to structure their Generosity Plan™.   

When David and Anna have both died, the payout from their life insurance policy will be donated to Abundance Canada as the named beneficiary of the policy. Abundance Canada will issue a donation receipt to the Estate of the last person to pass away (David or Anna). The proceeds from the life insurance policy will provide the cash for implementing David and Anna’s Generosity Plan. 

Including the Family in a Gift of Life Insurance 

However, rather than deciding now which charities they want to support with the life insurance donation, David and Anna have entrusted their children with that task. Over a period of five years, David and Anna’s children will make annual recommendations to Abundance Canada regarding which charities they wish to support, as well as how much and when each charity should receive the support 

Because the set value of the life insurance policy will not increase or decrease over time, it will provide a fixed donation receipt to either David or Anna’s estate, depending on which of them passes away last. This will help offset any capital gains tax owing on the sale of the cottage.   

David and Anna’s gift of life insurance not only ensures their legacy giving is simple and tax efficient but allows them to encourage the next generation of their family to make generosity a priority in their own lives.

Contributed by Marlow Gingerich
Gift Planning Consultant 

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