Lately, I have had several conversations with people about downsizing or simplifying their estates. Some talk about rearranging their financial affairs to make life easier for their executors someday. Others face the physically and emotionally demanding task of moving from the homes they have lived in for many years to smaller, more manageable accommodations. Furniture, accessories, and various collections accumulated over a lifetime are sorted, re-homed, or discarded. Reality TV promotes the fantasy of valuable items being discovered amongst the jumble, but downsizing our possessions rarely leads to unexpected riches. However, a little investigation when simplifying your finances might reveal some overlooked treasure, and a new opportunity for generous giving.
Simplify Your Finances
Just like downsizing a home, simplifying our finances requires us to take stock of what we own, and decide how we want to manage it. Demutualized life insurance shares are an often-overlooked financial asset that needs to be considered. You might be asking yourself, what are demutualized shares? and you wouldn’t be alone. Demutualization is the process by which a mutual company owned by groups of members changes to a joint stock company owned by shareholders.
Several years ago, four major life insurance companies (Sun Life, Manufacturers Life, Canada Life, and Clarica Life) demutualized, and each current policy-holder was issued shares in the new corporation equivalent to the accumulated value of their policies. At the time, some people took advantage of tax rules that allowed them to donate these shares to charity and avoid paying tax on the capital gains. Others sold their shares and used or invested the proceeds in other ways. However, a substantial number of people took no action at all, simply allowing their policies to convert and their shares to remain untouched. Those individuals may still have shares in their names being held by a third-party broker or trust company.
When simplifying your estate, it’s a good idea to review what life insurance you held prior to 2000 and whether you may still be the owner of demutualized shares from those insurance companies. If you are not certain, you can always contact the insurance company and ask how to confirm your ownership of any demutualized shares. If you discover you do have some shares, you’ll have some exciting options to consider.
You could sell your shares, but it is important to talk to your accountant or tax professional about the tax implications before doing so. You received the demutualized shares at zero cost, so if you sell them you will incur a taxable capital gain. Alternatively, you could seize this discovery as an opportunity for generous giving and donate the shares to charity as an in-kind donation. Selling might give you a little extra money today, but donating your shares could make a long-lasting impact on the people or causes that you support.
Shares donated in-kind provide a welcome asset boost to the charity of your choice, and also avoid the tax on capital gains associated with selling your shares. Perhaps you know you want to donate the shares to charity, but you aren’t sure exactly where you want to direct your giving? Donating your shares to Abundance Canada and placing the proceeds from the sale in a donor-advised planned giving fund allows you to take more time to make this decision. The consultants at Abundance Canada are ready to help you evaluate your options and guide you through the donation process.
A Step Worth Taking
Today, Canada’s senior population is growing rapidly. Baby boomers are starting their own retirements even while they care for elderly parents and relatives. Downsizing is impacting multiple generations at once. Faced with these difficult circumstances, simplifying your finances may seem a daunting task. However, taking the time to thoroughly investigate your financial assets might reveal an unexpected new pathway in your generosity journey, and that’s a step worth taking.
Contributed by Harold Penner
Gift Planning Consultant
Harold Penner is a Gift Planning Consultant with Abundance Canada. For more than 40 years, Abundance Canada has effectively helped Canadians with their charitable giving in their lifetime and through their estate. To learn more, call 1.800.772.3257 to arrange a confidential, no obligation free consultation.