The Gift of Life Insurance by jolinmilioncherie


A Lutheran Planned Giving Newsletter                                                       Spring 2000

The Gift of Life Insurance
       roposed amendments to        expense) of a lawyer. And         the year. This will reduce the
       the Income Tax Act           insurance proceeds are paid       amount of income tax you pay
       have made life               to the church outside your        during your lifetime.
insurance even more attractive      estate, so there are no probate   Method Call your agent and
as a way to make a gift to the      fees assessed on the gift.        ask to complete an ownership
church or other charities. This     Probate fees vary among           transfer or “absolute assign-
may be a good time for you to       provinces, up to a maximum        ment”. The insurance com-
take a fresh look at life           of 1.5% of the value of estate    pany will provide a form for
insurance gifts.                    assets over $50,000 in Ontario.   you to sign.
                                                                      2. Name the Beneficiary
Advantages                          Options                           By naming the church as
• Leverage Relatively small         1. Donate the Policy If           beneficiary, you are donating
annual or monthly payments          you are the owner of an indi-     the policy proceeds or death
can grow into a large charita-      vidual (not group) life insur-    benefits. You continue to own
ble gift.                           ance policy, you can donate it    the policy and can exercise all
• Universality Regardless           by transferring ownership of      the rights that go along with
of your age, you can find a         the policy to the church. The     that, including the right to
form of life insurance giving       policy can be one that you        name a different beneficiary if
that suits you.                     have held for some time, or a     you later change your mind.
• Flexible Tax Benefits             new one that you buy specifi-
Like most charitable gifts, gifts   cally for this purpose.                   continued on next page
of life insurance qualify for       Tax Treatment Because this
income tax benefits. You can        donation is irrevocable (i.e.
choose either to enjoy the                                            In this issue…
                                    you can’t change your mind),
benefits during your lifetime       the church can give you a         The Gift of Life
or defer them to your estate.       donation receipt for the cash     Insurance (continued) ...... 2
• Speed Compared to the             value of the policy at the time   Budget Announcements .. 2
settlement of an estate, life       of the transfer. Plus, every
insurance proceeds are paid to                                        The Lighter Side ............... 2
                                    premium you pay after this
the beneficiary much faster.        date is treated as another        Tom and Eileen’s Story .... 3
• No Fees Unlike a will, a          donation, and the church will     Insurance Tips ................... 4
gift of life insurance can be       give you an annual receipt
arranged without the help (or                                         Let Us Know ...................... 4
                                    for all premiums paid during
The Gift of Life Insurance
continued from page 1
                                    Something for
If the policy — either indi-        Younger donors…may be              Announcements
vidual or group — is in force       attracted to the idea of pur-
and the church is the benefici-
ary at the time of your death,
                                    chasing a new policy specifi-
                                    cally to make a planned gift. It   T    he budget speech on
                                                                            February 28, 2000
                                                                       announced a number of
the insurance company pays          may be the easiest way for
the death benefit to the            them to create a large legacy at   changes to the Income Tax Act,
church.                             a time when their assets are       several of which affect
                                    not substantial. Plus, the         planned giving. These
Tax Treatment The church                                               include:
                                    younger you are, the lower the
will give a receipt to the execu-
                                    premiums.                          • Allowing charities to
tor of your estate for the
amount of the proceeds re-          Older donors… may have               provide a donation receipt
ceived. This will reduce the        existing coverage that is no         to the estate of a deceased
amount of income tax that           longer needed for the original       person where the charity
your estate will have to pay,       purpose and may not be               has received insurance
and thereby increases the           missed by the heirs. You may         proceeds from a policy
amount received by the benefi-      even have forgotten that you         which it did not own.
ciaries named in your will.         have the policy, so why not        • Allowing the
                                    donate it to the church and put      same treat-
Method Call your agent and
                                    it to use in carrying out            ment for
ask to complete a beneficiary
                                    Christ’s mission?                    pro-
designation. The insurance
company will provide a form         Employees… and other                 ceeds
for you to sign.                    people who have group insur-         received
                                    ance coverage (e.g. through a        under the
                                    union, professional group or         beneficiary designation of
                                    alumni association) can name         a Registered Retirement
                                    the church as beneficiary.           Savings Plan (RRSP) or
                                                                         Registered Retirement
                                                                         Income Fund (RRIF).
 The Lighter Side                                                      • Reducing the capital gains
                                                                         inclusion rate from 37.5%
 The pastor cut himself shav-       “While                               to 33.33% on gifts of
 ing one Sunday morning, so         shaving this                         appreciated securities
 he put a band-aid on the cut       morning I                            donated to a charity
 before heading to church.          was concen-                        These amendments have not
 After a sermon that was            trating on my sermon and cut       yet been passed into law.
 somewhat longer than nor-          my chin”, the pastor replied.      However, the provisions con-
 mal, a parishioner greeted         The woman retorted, “Maybe         cerning beneficiary designa-
 him at the door-way.               you should have concentrated       tions of insurance policies and
 “What did you do to your           on your chin and cut your          retirement plans will apply
 face?”, she asked.                 sermon instead.”                   retroactively to persons whose
                                                                       death occurred after 1998.

Offerings - Spring 2000                                                                             2
Tom and Eileen’s Story
Tom and Eileen Nelson are so         posit $2,000 per year for a
excited about their recent           period of six years
insurance gift that they’ve        • Based on current assump-
suggested that we share their        tions (not guaranteed), the
story with you, but we’ve            investment income will
changed the names to protect         keep the policy in force
their privacy.                       indefinitely, even if they
                                                                                the vicinity of 48% of
Tom (age 63) and Eileen (62),        never make another pre-
                                                                                the gift or $28,000+.
both retired, were each plan-        mium deposit after the
ning to leave $5,000 to the          sixth year.                        The Nelsons are enthusiastic
church in their wills. Then                                             about this plan because it
                                   • The money in the invest-
they saw a Lutheran Planned                                             offers them a way of making a
                                     ment account accumulates
Giving brochure on gifts of life                                        larger gift than they had an-
                                     tax-free. Projections show
insurance and began to won-                                             ticipated, and at a reasonable
                                     that this could amount to
der if insurance would be a                                             cost. The way they look at it,
                                     over $9,000 by the tenth
good alternative to a bequest.                                          they invest $12,000 over six
                                     year, adding to the death
They called their insurance                                             years. If they do nothing else,
                                     benefit. If the Nelsons
agent, who presented a pro-                                             they produce $59,000 in value
                                     need to access the money
gram that contained the fol-                                            for the church and another
                                     in the investment account,
lowing features:                                                        $28,000 for their children.
                                     the earnings are taxed as
• Tom and Eileen will buy a          income in that year.               Perhaps most important, and
    policy with a death benefit                                         not to be overlooked in the
                                   • After both Tom and Eileen
    of $50,000 on a last-to-die                                         discussion of insurance and
                                     have died,
    basis. That means that the                                          income taxes, is the fact that
                                         the church will get the        the Nelsons have become
    proceeds are not paid until
                                         proceeds of the insur-         benefactors of the church.
    the death of the second
                                         ance plus the invest-          Their gift will be the engine
    spouse, whoever that turns
                                         ment account, a total          that powers mission and
    out to be. The beneficiaries
                                         projected to be over           ministry — at the local and
    will be their congregation
                                         $59,000;                       synodical level — for years to
    and their synod.
                                         their estate will get a        come. Tom and Eileen have
• Because it is a Universal
                                         donation receipt for the       been faithful supporters of
    Life type policy, they can
                                         full gift ($59,000+);          their church for decades, and
    pay more than the required
                                         their heirs will get the tax   they are passionate about
    premium and have the
                                         credit produced by the         seeing their church continue to
    excess invested in one of
                                         donation which, if             proclaim God’s word and
    several different accounts.
                                         current tax rates are          bring healing to a hurting
• The Nelsons plan to de-                                               world.
                                         maintained, will be in
 Offerings is a publication of Lutheran Planned Giving, a minis-        Lutheran Planned Giving
 try of the Evangelical Lutheran Church in Canada. Lutheran             Jeff Pym, Director
 Planned Giving does not provide or purport to provide legal or         385 Torrance Street
 tax counsel. We urge our readers to consult with and rely upon         Burlington, ON L7R 2R7
 the opinion of qualified legal, tax and financial advisors before      1-888-308-9461
 implementing any of the ideas described in this publication. 

  3                                                                          Offerings - Spring 2000
                                                                               your agent if this would
Insurance Tips                                                             •
                                                                               trigger any taxable gains.
                                                                               Charitable donations, includ-
•   Make sure that your other         •   Term-to-100 is a type of             ing gifts of life insurance,
    insurance needs are not               permanent, no-frills, low-cost       create tax credits which
    compromised by your gift.             insurance that is worth con-         reduce the amount of income
    Good stewardship includes             sidering. It is available from       tax you’ll pay. The value of
    providing for your family.            many companies.                      these credits range from 41-
•   There is great variation in       •   Many companies sell policies         53%, depending on your
    premium rates from company            to couples on a “last to die”        income and province of
    to company, so shop around.           basis. This can significantly        residence. In other words, for
    Information is available on           reduce the cost of insurance,        every $100 you donate (after
    the internet from sites such as       even for older couples.              the first $200 in the year), But            •   Before transferring ownership        you’ll receive back at least
    remember, cheapest is not             of a policy that is more than        $41 through reduced income
    always best.                          20 years old, be sure to ask         taxes.

Lutheran Planned Giving
385 Torrance Street
Burlington, ON
L7R 2R7

Let Us Know
If you:                                                           You can reach us at:
• have a comment, question or quibble;                                  Lutheran Planned Giving
• need more information;                                                1-888-308-9461
• want to share a story or tell us about your gift            

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Offerings - Spring 2000                                                                                    4

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