Life Insurance
A gift of a life insurance policy to charity can be a valuable gift planning option for Donors if they desire to make a significant future donation.
Two Options to Consider
Timing of Donation
Timing of Receipt
1. Donating the ownership of the life insurance policy to GiveWise immediately
Policy Holder (Donor) receives an immediate tax receipt, and gets receipted as the Donor covers future premiums
2. Retaining ownership of the policy and naming GiveWise as the beneficiary of the policy
Policy Holder (Donor) receives tax receipt at policy maturity, or Estate receives tax receipt upon donor’s passing.
1. Charity becomes the owner of the Life Insurance Policy
This gift planning option works best if the Policy holder requires a donation receipt immediately.
Policy holder irrevocably transfers the ownership of an existing life insurance policy to a charity.
The charity owns the policy going forward.Policy holder receives a donation receipt for the fair value (FV) of the policy on the date of the ownership transfer.In some circumstances, the FV of the life insurance policy on the date of the ownership transfer might be higher than the cash surrender value (CSV). The age and health of the lives insured are two considerations that could impact the policy valuation and donation receipt. An actuarial assessment is required to determine if a donation receipt in excess of the CSV could be issued.
If there are ongoing premiums to be paid on the policy, GiveWise is responsible for those payments as the owner of the policy.If the Policy holder chooses to continue making the premium payments on the donated policy, they would receive a donation receipt for any life insurance premiums they pay.
When the policy matures, the life insurance proceeds are paid directly to GiveWise, as the owner of the policy.
No donation receipt is issued to the donor’s estate for the proceeds from the matured policy.
GiveWise then begins distribution of the proceeds of the policy to the named charities per the original policy holder’s instructions.
Tax Planning Tips
Policy holder will realize taxable income for the difference between the policy adjusted cost base (ACB) and the policy Cash Surrender Value (CSV).
If the policy has a Fair Value in excess of the CSV, the donation receipt will be issued for the FV.
The difference between the policy CSV and the FV is not considered taxable income for the Policy holder, which results in a donation receipt in excess of their taxable income due to the donation of the policy.
This excess donation receipt amount can be used to offset other taxable income.
Example of a gift of a life insurance policy to charity
Janice has owned a life insurance policy for 42 years. Janice is 82 years old and no longer requires the life insurance policy for estate planning purposes. She wants to donate ownership of the policy to GiveWise Foundation Canada, so the funds can be distributed to several charities she cares about. Here are the policy details on the date of the ownership transfer:
Face Value: $1,600,000
Cash Surrender Value: $300,000
Fair Value: $1,300,000
Adjusted Cost Base: $150,000
Annual premium $2,500
Janice plans to donate $2,500 to GiveWise Foundation Canada each year to cover the annual premium payment.
Janice will receive a donation receipt for:
$1,300,000, the FV of the insurance policy on the date the ownership transfers to GiveWise.
Any future donations she makes to GiveWise to cover the annual premium payment.
Janice will incur taxable income of $150,000 from the deemed disposition of the policy (CSV of $300,000 less $150,000 ACB).
Janice will have $1,150,000 of excess donation receipt above the taxable income from the policy disposition that she can use to offset other taxable income.
2. Charity is named the Beneficiary of a Life Insurance Policy
This gift planning option works best if the policy holder needs a donation receipt in their estate, not immediately or during their lifetime.
Policy holder names GiveWise as the beneficiary of the policy.
Policy holder retains ownership of the policy inter-vivos; GiveWise does not own the policy.
Policy holder could choose to divide the policy among several charities, through GiveWise’s simple Life Insurance Bequest Dispersal Worksheet. Policy holder can name one or several charities, amounts for each charity, and timelines for each gift.
Policy holder continues to pay the policy premiums going forward. A donation receipt will not be issued for premium payments because GiveWise is not yet the owner of the policy.
When the policy matures, any life insurance proceeds that GiveWise receives as the named beneficiary will result in a donation receipt for the policy owner, and GiveWise will begin granting to the named charities as per the policy holder’s instructions.
Tax Planning Tips
Policy holder’s Estate receives a charitable receipt to help offset taxes owing
The life insurance proceeds are paid directly to GiveWise and do not flow through the Estate:
Not subject to probate or estate administration fees
Funds received by end beneficiaries more quickly through GiveWise’s prompt granting process
Not exposed to Estate creditors
We Love to Help!
If you need further assistance, or have questions about the many benefits that a GiveWise Giving Fund offers, please email:
Dan Kyte, Director of Finance and Investments
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