Increase Charitable Giving, And Charitable Tax Credits, With Life Insurance

By on April 7, 2011

Increase Charitable Giving, And Charitable Tax Credits, With Life Insurance

When I was younger I was a rock climber. Through climbing I learned about a clothing brand named Patagonia, and a man named Yves Chouinard. This individual loved the outdoors and travelled to far off countries to climb the hardest mountains possible. In his travels he found villages that needed lots of help, yet there was not much he could do. Yves went on to create Patagonia with two goals:

1. Create fantastic gear that could withstand the harshest of climates.
2. Use profits from his company to help support those communities with the fewest resources.

Patagonia has come a long way. It is now one of the top athletic wear companies in the world and they fund millions of dollars into charities and expeditions ever year.

You may wonder why I am writing about Yves & Patagonia in an article about Charitable Giving and Life Insurance. I do so as Yves is my inspiration for creating Marathon Benefit Corp. One of the priorities at Marathon is to help increase the flow of money to charitable organizations. Insurance is a very efficient way to do just that.

Below are some examples of how charitable giving can work and how insurance can magnify your donation and your tax credits* at the same time (or deduction for a corporation). (*A tax credit is a direct reduction of your tax liability)

Donation & Tax Credit Options:

1. Most people just make annual donations and take the Tax Credit in that tax year. The 2010 tax credit was 49% (in Alberta) on amounts greater than $200. (i.e. if you donate $1000, your tax credit is worth approximately $490)

2. Many people leave a charitable legacy on death. That legacy will create a tax credit based on the total value of the legacy going to their charity. That legacy can be applied to their final estate taxes.

3. Some people create a foundation. Money transferred into the foundation is a tax credit in the year of the donation.

4. Through insurance, you can make an annual donation, a donation on death, or both. The result can magnify the benefit to your favorite charity and the tax benefit to you and your heirs

Insurance Options:

  1. With insurance you can assign the policy to your charity or foundation, and write off the annual premiums or final payout of the policy.
  2.  You can also have two policies. One can create an annual credit and the other can create a credit on death. On death the insurance benefit is what creates the credit.

For example; Take a healthy 55 year old male & 55 year old female. For $75,000 of insurance their premium is $1,000 / year for 20 years. They can take the annual $1,000 credit or they can take the one-time $75,000 credit when the policy pays out.

Foundations:

A foundation can be; a family foundation (private), a public foundation, a community foundation or a Donor Advised Fund (similar to a community foundation but managed by a financial institution)

The foundation option usually involves an annual donation to a foundation each year. Perhaps the donation is $10,000 / year. If they take $1,000 of that money they will have a remaining annual donation of $9,000 [The annual credit would be $4,410 (9,000 x 49%)]. Eventually the foundation will get an instant boost of $75,000 from the insurance. That insurance benefit would be worth $36,750 in the year of death, as a tax credit. It would take about 81 years of donating $1,000 / year to create that type of credit.

Another way of looking at this is that the tax credit on donations is 49%. By paying for insurance, and taking the credit on the value of the insurance payout, you increase your donation and your tax credit by 375%. This is based on a total amount paid of $20,000 because your actual donation is $75,000 (the amount of the insurance payout on death).

There are many options available. For a full review you should speak with your financial adviser & your accountant to ensure you get the greatest advantage of your available tax credits.

create tax credits with life insurance

Insurance Options:

  1. With insurance you can assign the policy to your charity or foundation, and write off the annual premiums or final payout of the policy.
  2.  You can also have two policies. One can create an annual credit and the other can create a credit on death. On death the insurance benefit is what creates the credit.

For example; Take a healthy 55 year old male & 55 year old female. For $75,000 of insurance their premium is $1,000 / year for 20 years. They can take the annual $1,000 credit or they can take the one-time $75,000 credit when the policy pays out.

The foundation option usually involves an annual donation to a foundation each year. Perhaps the donation is $10,000 / year. If they take $1,000 of that money they will have a remaining annual donation of $9,000 [The annual credit would be $4,410 (9,000 x 49%)]. Eventually the foundation will get an instant boost of $75,000 from the insurance. That insurance benefit would be worth $36,750 in the year of death, as a tax credit. It would take about 81 years of donating $1,000 / year to create that type of credit.

Another way of looking at this is that the tax credit on donations is 49%. By paying for insurance, and taking the credit on the value of the insurance payout, you increase your donation and your tax credit by 375%. This is based on a total amount paid of $20,000 because your actual donation is $75,000 (the amount of the insurance payout on death).

earn tax credit by giving through insurance

There are many options available. For a full review you should speak with your financial advisor & your accountant to ensure you get the greatest advantage of your available tax credits.



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