Ecojustice Blog – Special Update Posted on July 12, 2011 (updated: August 1, 2017)

Gift Using Life Insurance

Jocelyn AndersonStaff

As part of estate planning, life insurance can be used to make a large gift to Ecojustice Canada Society for a relatively small cost to you and, at the same time, you can realize tax benefits.

There are several ways to make a gift using life insurance. Deciding which method is best for you will depend on your circumstances and needs.

Paid-up life insurance policy

Why choose this type of gift?
You may be interested in donating a paid-up life insurance policy if you purchased a life insurance policy many years ago and it is now paid off. Your reasons for purchasing life insurance in the past may have included providing family protection when your family was young or backing a loan taken to start a new business. Now those reasons for purchasing the policy may no longer exist, and your life insurance policy is an idle asset. You can use this asset to make a gift to Ecojustice Canada Society by simply transferring the policy.

Tax savings
Transferring ownership of a paid-up policy to Ecojustice Canada Society will result in an immediate tax receipt to you for the fair market value of the policy at the time it is transferred. You can use the tax receipt to offset up to 75% of your income from any source in the year when the ownership of the policy is transferred to Ecojustice Canada Society. Any excess tax credit can be carried forward for five years.

Life insurance policy with premiums still payable

Why choose this type of gift?
You may be interested in donating a life insurance policy with premiums still payable if: you are between 30 and 65 years old, are insurable, you would like to make a large gift to Ecojustice Canada Society and you either require tax credits during your life time or for your estate. You either do not have a large amount of capital available or you have some capital available but would like to leverage it to make a larger gift, as well as to maximize your tax savings.

There are four ways to make this type of gift:

You establish a life insurance policy on your life and then transfer the ownership of the policy to Ecojustice Canada Society and also designate Ecojustice as the registered beneficiary of
the policy. Then you pay the premiums as they become due and receive tax receipts for these payments during your lifetime;

You establish a life insurance policy on your life and then transfer the ownership of the policy to Ecojustice Canada Society and also designate Ecojustice as the registered beneficiary of the policy. Then you pay off the policy through a one-time payment or through payments over a maximum of five years. You will receive tax receipts for these payments during your lifetime;

If you already have a policy and premiums are still payable, you can transfer the ownership of
the policy to the Ecojustice Canada Society and also designate Ecojustice as the beneficiary. Then you continue to pay the premiums and you will receive tax receipts for these payments.

If you have a new or existing life insurance policy, you can retain ownership of the policy and designate Ecojustice Canada Society as the beneficiary. You will not receive tax receipts for the premium payments, but your estate will receive a tax receipt for the proceeds of the policy ultimately received by Ecojustice.

Tax savings
In the case of a new policy with premiums payable into the future, you are entitled to a tax receipt for the amount of the insurance policy premiums when you pay them. If you have an existing policy with premiums still payable, you are also entitled to an immediate tax receipt for the fair market value of the policy at the time it is transferred to Ecojustice Canada Society, net of any future premium payments.

In the case of a new policy that you pay off, you are entitled to a tax receipt for the amount used to pay off the policy. You can use the tax receipt to offset up to 75% of your income from any source in the year when the ownership of the policy is transferred to Ecojustice. Any excess tax credit can be carried forward for five years. Please note that a tax receipt may only be issued if the policy ownership has been transferred to Ecojustice Canada Society and Ecojustice has also been designated as the registered beneficiary.

In the case of a new policy that you would like to pay off, if the capital that you would like to use to pay up the policy is in the form of appreciated publicly traded securities, you can also realize tax
savings on the capital gain. Please see the page entitled Gifts of Publicly Listed Securities for more information on the tax implications of such a gift.

In the case of a policy which only designates Ecojustice Canada Society as the beneficiary (and you retain ownership of the policy), a tax receipt will be issued to the estate when the policy proceeds are received by Ecojustice.

Wealth Replacement

Why choose this type of gift?
If you have capital assets available but you are concerned that making a major gift will diminish the assets that will ultimately go to your family, the wealth replacement strategy may be of interest to you. This is a gift arrangement whereby you make a gift to Ecojustice Canada Society from your capital and use the resulting tax savings to pay the premiums on a life insurance policy on your life that will pay the proceeds to your family members. Depending on your age and your state of health, it may be possible that the tax savings entirely cover the cost of the premiums payable on the life insurance policy.

Tax savings
If you make a gift to Ecojustice Canada Society from your existing capital, you are entitled to a tax receipt for the amount of the gift and can claim this in the year the gift is made, up to a maximum of 75% of your income plus 25% of the capital gain.

Please see the enclosed page entitled Gifts of publicly listed securities to learn the tax implications of donating securities rather than cash. Any donations that you do not claim in the year of the gift can be carried forward for up to five years.

For more information on making a gift in your will, please visit our legacy giving page.

The above information is general in nature and is not legal or tax advice. We can help you realize your wish to support using the law to protect and restore the environment in Canada by working with you and your financial and legal professional advisors.

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