Through the JCFC, you can leave a substantial gift to the community with a relatively small donation. By purchasing a new life insurance policy or transferring an existing policy and naming the JCFC as the beneficiary and owner of the insurance policy, you can create a significant legacy at a modest cost.
Life insurance is an important tool in the estate and gift planning process. The benefits of life insurance left to an individual or estate can be subject to taxes, but when the beneficiary is a charitable organization such as the JCFC, the benefits are tax-free.
An example of using a gift of life insurance to capitalize a fund at the JCFC
The Joneses are both 65 years of age, in good health and in a comfortable financial position. The Joneses will purchase a term-to-100 life insurance policy jointly on their lives. The policy will pay out $100,000 upon the death of the second one. Assume the policy will have premiums of $1,425 annually, payable until they are both gone. After paying the first year’s premium, they will donate that policy to their favourite charity (there is no tax credit for this gift because there is no cash surrender value in this case).
Since the charity owns the policy now, the charity knows it will always be the beneficiary of the policy and will collect the $100,000 death benefit when the second one dies.
Next, the Joneses are going to donate $23,500 to the charity, which the charity will use to purchase a life annuity on the couple’s lives. This annuity will pay out $1,425 annually, exactly what is needed to pay for the life insurance policy the charity now owns. The couple will receive a donation tax credit for the $23,500 gift, which will save them about $10,575 at a marginal tax rate of 45 per cent. The out-of-pocket cost to the Joneses is $14,350 in this example ($23,500 less the tax savings of $10,575 plus $1,425 for the first year premium).
In the end, the charity receives a fully funded, irrevocable future gift of $100,000 (albeit in the future) that cost the couple $14,350.
The Joneses are able to make a commitment to the charity today so that it can acknowledge the gift, they receive some tax savings today, avoid probate fees on the insurance proceeds, and set up a planned gift with a one-time transaction that avoids future payments and administration for the couple.
Please consult your tax or estate planning professional to determine what is best for you.