Donating a life insurance policy to your Ottawa Church or Charity
During the holiday season most of us get into the spirit of giving, gifts to family and friends and donations to charities, churches and other community organizations. What if there was a way to maximize your donations to really make a difference and help those that need it and still claim your tax deduction for the year? By donating a life insurance policy to your church, the United Way or the Salvation Army in Ottawa you will still receive your tax credits and you can provide a large amount of money to support your organization when they really need it most.
There are approximately 83,000 registered charities in Canada and approximately 29,000 in Ontario. The average amount of charitable donations increased from $170 in 1997 to $250 in 2007. However, the number of tax filers declaring charitable donations decreased from 25.7% to 24%. Churches and religious organizations receive 46% of donated dollars followed by health organizations (15%) and social services organizations (10%). The top 25% of donors (who contributed $364 or more annually) account for 82% of the total value of donations. The top 10% (who contributed $1,002 or more annually) account for 62% of the total value.
The problems facing Ottawa charities and churches
Ottawa Churches, Religious organizations and Charities are facing several challenges in today’s economy;
- Cannot afford to lose current donations
- Want to maintain or increase their donor base
- Want to enhance loyalty of donors to the charity
- Need to build a cash reserve for emergencies or capital projects
- Want to reduce time spent on fundraising activities
How can you make the most of your donation dollars?
Nearly 20% of Canadians surveyed said they planned to increase their donations to charity next year. On average, those who donated spent more on gifts to non-profit organizations ($1041) than on holiday gifts for friends and family ($607)
Using life insurance allows a person to use a small amount of money to provide a large gift to a charity for a relatively small annual premium (which may generate a tax credit), without reducing the estate to be left to their dependents/beneficiaries. It’s easy to be generous when it doesn’t cost too much.
How does donating using a life insurance policy work?
You can do it two ways:
- Gift of policy, or
- Gift of proceeds
- The policy will not expire
- The cash value is immediately useful
The three methods:
Donor Owned Policies:
1. Donor owned life insurance policy with charity named as beneficiary
2. Funding a bequest through a will Charity Owned Policies:
3. Charity owns the policy and is the beneficiary
The tax rules on charitable giving Individuals
Entitled to non?refundable, non?transferable Federal tax credit:
On the first $200 – 15%
On amounts above $200 ? 29%
Plus provincial tax
And surtax savings
A person donates $5,000 to charity in one year.
Tax credit on first $200:
$200 x (0.15 x 1.50) $ 45.00
Tax credit on remaining amount:
($5,000 ? $200) x (0.29 x 1.50) $2,088.00
Total amount of tax credit:
($45.00 + $2,088.00) $2,133.00*
This works out to be equal to approximately 43% of the value of the gift.
Money you spend annually on premiums will be considered a charitable donation. An insurance policy can be donated for no additional cost to you when compared to a simple cash donation.
To find out more about donating a life insurance policy to an Ottawa charity, church or religious organization please call me at 613.286.6841 or e-mail info@AndrewWBradley.ca. Visit my website for free tools, tips, videos and more to help your family put your financial pieces together.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.
Author: Andrew W Bradley
Source: www.canadianfundraiser.com (2010)
Source: Caring Canadians, Involved Canadians: Highlights from the 2007 Canada Survey of Giving, Volunteering and Participating, Michael Hall, David Lasby, Steven Ayer, of Imagine Canada and William David Gibbons, Statistics Canada, 2009.