WIIFM

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WIIFM Whats in it for Me?

• New Perspectives on Complex Gifts

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Topics

• Why Charitable Gift Planning
• - the WIIFM factor
• Current gifts through asset transformations
• Use of Charitable Gift Insured Annuities
• To increase income and provide a major gift now
• To maintain income and provide a major gift now
• Charitable Planned Gifts
• Case Study
• Using Life Insurance effectively
• Gift Planning for business owners

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Charitable Gift Planning Case Study

• New Perspectives on Complex Gifts

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Case Study Details

• Jack Jill Giving mid sixties and are mostly
  retired with 4 grown children
• Income sources work pension, OAS, CPP, and
  investment income. RRSPs are being deferred
  until age 69.
• Assets include their home and contents and a
  family cottage
• Have not done any significant estate planning
  outside of their Will
• Were unaware of the amount of tax payable in
  their estate

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Case Study Details

• Had attended a presentation on charitable gift
  planning which introduced the strategy of using
  insurance to magnify a gift
• They had pondered this idea almost 2 years before
  proceeding to the next step
• Their thought was to use 15,000 earmarked for
  the university and purchase a 75,000 life
  insurance policy.
• The discovery process then began

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Case Study Details

• It was discovered that Jack Jill had 6
  charities to share in 50k in their estate
• Jacks father had recently passed away and left
  them a sizeable inheritance
• They wanted to explore how to integrate their
  charitable bequests with their estate planning
• Info and facts were gathered, a dollar figure was
  allotted for this program and the analysis
  process began

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Goals

• Reduce tax in the estate and during retirement
• Magnify charitable bequests
• Maintain income level
• Fairness to children in the estate
• Keep the process simple

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Present Situation
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Present Situation

• Maximum tax paid to CRA in the estate
• Minimum amount in charitable bequests
• All non-registered investments exposed to tax,
  except where deferrals are available
• If more is left to charity, less tax is paid in
  estate, but less goes to heirs

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New Strategy

• Jack and Jill wish to use 80,000 from Jacks
  fathers estate for an insurance program for
  their charitable and estate planning
• These funds will purchase a 400,000 Joint
  2nd-to-Die Universal Life Insurance plan
• The funds will be deposited into the plan over a
  4 year period.
• They will designate the charities as beneficiary
  of 250,000 of the insurance policy with the
  remainder paid to their children
• Jack and Jill must revise their Wills in order to
  reflect their new plan

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New Estate Charitable Plan
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New Estate Charitable Plan

• Amount left to Charity increased from 50,000 to
  250,000

• Amount left to CRA decreased from 324,242.80 to
  178,149.98

• Amount left to family increased from
  1,624,642.34 to 1,706,503.40

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Whats in it for me?

• WIIFM
• Annual taxable income is lowered
• Tax in estate is lowered significantly
• No money out-of-pocket shift in assets
• Estate is preserved for heirs
• Establish a major charitable endowment
• Opportunity Spotting
• Donors looking for innovative planned giving
  strategies
• Existing Donors who may have made cash bequests
  in their Will
• Must be in good health to acquire insurance

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Charitable Gifts Insured Annuities

• New Perspectives on Complex Gifts

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What is an Annuity?

• A series of payments either for a certain period
  of time, or for life, in exchange for a lump sum
  deposit reverse mortgage
• Payments are a blend of principal and interest
  guaranteed for life or a term certain period
• Payments can be based either on a single life or
  joint lives
• Payments may be level or indexed

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What is an Annuity?

• Level payments with prescribed taxation are most
  common.
• Guarantee payment periods can be integrated to
  ensure return of deposit
• Longer guarantee period, lower payments and vice
  versa

Annuity quote based on rates as of March 28,
2005
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Examples of Annuities

• Canada Pension Plan
• Old Age Security
• Retirement pensions

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Charitable AnnuitiesNew Administration

• Simplified process for annuities after December
  20th, 2002
• Tax receipt for the full amount of gift
• Annuity is based on prescribed taxation T4A for
  a prescribed amount annually for life
• Donor remains the owner of the annuity and the
  charity may be named as revocable beneficiary of
  any remaining annuity payments after the death of
  the donor
• Establishing the annuity this way, a tax receipt
  can be issued to the donors estate for the
  remaining payments, if any.

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Charitable Gift Insured Annuity-
DemographicsINCREASE Annual Income while
providing a Major Gift Now!

• For those who would like to donate a significant
  gift now, but not suffer in reduction of income
• Three main components
• A cash gift now
• A commercial annuity
• A life insurance policy
• Donors in their early 60s and older
• Those who have other retirement income sources
• Those who are looking to increase income stream
  and have a guaranteed fixed income portion of
  their portfolio
• Want to preserve capital for their heirs

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Gift of Cash

• Female age 75
• Capital Amount - 200,000
• Current 5 Year GIC 3.60
• Marginal Tax Rate 46.41

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Charitable Gift Insured Annuity Comparison

• Female age 75
• Capital Amount - 200,000 (150,000 after Gift)
• Current 5-Year GIC 3.60
• Marginal Tax Rate 46.41

• Annuity quote based on rates as of March 28, 2005
  1-year guarantee payment period

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Charitable Gift Insured Annuity Comparison

• Female age 75
• Capital Amount - 200,000 (150,000 after Gift)
• Current 5-Year GIC 3.60
• Marginal Tax Rate 31.15

• Annuity quote based on rates as of March 28, 2005
  1-year guarantee payment period

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Charitable Gift Insured Annuity-
DemographicsMAINTAIN Annual Income while
providing a Major Gift Now!

• For those who would like to donate a significant
  gift now, but not suffer in reduction of income
• Three main components
• A cash gift now
• A commercial annuity
• A life insurance policy
• Donors in their early 60s and older
• Those who have other retirement income sources
• Those who are looking to maintain income stream
  and have a guaranteed fixed income portion of
  their portfolio
• Want to preserve capital for their heirs

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Charitable Gift Insured AnnuityMaintain
Annual Income while providing a Major Gift Now!

• Jill Giving is 73 years young and in great health
• She has 3 grown children, and was recently
  widowed after her husband, Jack, died from a
  lengthy illness
• Her retirement income is made up of
• work pensions (both hers and Jacks),
• a RRIF,
• GICs,
• T-Bills,
• an equity investment portfolio,
• Old Age Security (reduced due to OAS clawback)
  and
• Canada Pension Plan

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Charitable Gift Insured AnnuityMaintain
Annual Income while providing a Major Gift Now!

• Jill would like to make a sizeable donation to
  her and Jacks favourite charities
• However, she would have to give up a good portion
  of interest income
• Jill has 500,000 of GICs averaging 4.00 return
• Annual Interest 20,000.00
• Annual Income Tax 8,682.00
• After Tax Income 11,318.00
• Jill wonders how she can maintain income and make
  a gift to the charities
• She also wants to leave her estate in tact as
  much as possible for her children and
  grandchildren.

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Charitable Gift Insured AnnuityMaintain
Annual Income while providing a Major Gift Now!

• Heres what Jill can do
• Make immediate gift of 150,000 to the charities
• Purchase a prescribed life annuity with 350,000
  of her GICs
• Purchase a 500,000 Term-100 Life Insurance plan
  to replace capital to her heirs
• OAS clawback is reduced due to the prescribed
  annuity, resulting in an after tax income to
  12,036.72
• Immediate tax savings of 69,615.00 (5-year carry
  forward if needed)

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Charitable Gift Insured AnnuityMaintain Annual
Income while providing a Major Gift Now!
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Whats in it for me?

• WIIFM
• Higher after-tax income for life
• Possible reduction in claw-back in OAS
• 1,000 Pension Tax Credit (if not already being
  claimed)
• Large tax receipt for instant tax savings
• Can see the gift working during lifetime
• No more re-investment risk
• Reduction of large amount of probate fees with
  the use of life insurance
• Opportunity Spotting
• Would like to make a major gift unsure how?
• Concerned with preserving capital for heirs
• Have their open investments in low-paying GICs or
  Bonds
• Have had investment capital eroded by low or
  negative market returns and inflation
• Need or would like to increase income

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Gifts of Life Insurance

• New Perspectives on Complex Gifts

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Gifts of Life Insurance

• Gifts of life insurance can greatly magnify a
  Charitable Planned Gift
• A donor may gift an existing life insurance
  policy or purchase a new one
• Existing or new policies that are gifted while
  living
• The charity is made owner and beneficiary of the
  policy
• A donation receipt is issued as future premiums
  paid
• For existing policies, receive a donation receipt
  for the cash value (if anya taxable disposition
  may occur)
• No receipt is issued for the death benefit

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Gifts of Life Insurance

• Policies that are gifted at death
• The donor remains as the owner of the policy and
  names the charity as the revocable beneficiary
• Receive a donation receipt for the death benefit
  proceeds that are gifted
• No receipt is given for premiums that are paid
  during the donors lifetime
• This receipt can then be used to offset taxes
  owing in the estate
• Structured properly, all taxes may be eliminated
  in the estate

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Gifts of Life Insurance

• Mike Anita, age 65, concerned with amount of
  tax owing in their estate
• Want to preserve their estate for their family
  but also provide a Charitable Gift
• Have sufficient retirement income from RRIFs,
  work pensions, CPP, and OAS
• Have designated 75,000 to their charity which is
  set aside in T-Bills
• Interest is taxed annually
• They have 350,000 in RRIFs between them
• Potential tax liability of 162,435 on RRIFs
• Need to re-structure their affairs and look into
  alternative ways of charitable gifting

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Present Situation
Tax on Annual interest
RRIF 350,000
T-Bills 75,000
Family
Tax receipt for 75,000
222,372 after tax to heirs
127,628 taxes
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Gifts of Life Insurance

• Their bequest can be greatly enhanced and their
  estate preserved with the use of a
  Joint-2nd-to-die estate universal life
  insurance plan.
• Perform an Asset Shift by moving the 75,000
  into the estate insurance plan over 3 years -
  25,000 per year
• The RRIF may be left to the charity tax free
  after the donation receipt
• The life insurance plan is left to their family
  tax free

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New Situation
RRIF 350,000
75,000 T-Bills
Life Insurance 300,000
Tax-Free after Donation receipt
374,025 Tax-Free
Family
Tax receipt for 350,000
0 taxes

• Projected Death Benefit in 20 years 300,000 of
  insurance plus investment account

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Gifts of Life InsuranceNew Situation

• Amount left to family increased from 222,372 to
  374,025
• Amount left to Charity increased from 75,000 to
  350,000
• Amount left to CCRA decreased from 127,628 to 0

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Whats in it for me?

• WIIFM
• Both their current and estate status are in a
  better financial position
• Larger tax receipt in the estate to offset other
  tax owing
• Lower tax during retirement
• Reduction of large amount of probate fees with
  the use of insurance
• Opportunity Spotting
• Bequests of cash
• Donors may have the financial assets for a
  planned gift but dont know it
• Annual donors who would like to explore further
• Must be in good health to acquire insurance

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Corporate Charitable Gift and Insured Annuity

• New Perspectives on Complex Gifts

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What is a Corporate Planned Gift and Insured
Annuity

• A strategy designed to create a sizable
  Charitable Planned Gift while maintaining income
  and lowering tax at death.
• 3 elements
• Non-prescribed Life Annuity
• Life Insurance
• The use of section 118 of the Income tax act
• Putting all of the elements together will benefit
  not only the donor and their corporation but the
  charity(s) as the beneficiary
• Avoid all tax possible evade none!

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Corporate Planned Gift and Insured Annuity

• Mr. Widget, a healthy and young age 67, owns 100
  of WidgetCo and has interest bearing investments
  held in the corporation of 500k invested at
  5.00.
• Tax on investments held in a corporation
  (non-business income) range from 47.79 - 52.79
  - use an average of 50.00

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Corporate Planned Gift and Insured Annuity

• Current Situation

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Corporate Planned Gift and Insured Annuity

• Mr. Widget acquires a non-prescribed life
  annuity with the 500,000 of capital
• To replace the capital upon death, Mr. Widget
  purchases a 500k Insurance plan - 16,380/year
• To create a charitable gift, Mr. Widget purchases
  a 400k Insurance plan and assigns it to the
  charity to the corporation, receives a
  deduction for the 13,258 premium annually net
  cost of 6,629/year
• This strategy will provide the same income and
  significantly lower tax at death

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Corporate Planned Gift and Insured Annuity
500,000 Investment
WidgetCo
Non-prescribed Annuity 42,370/year 6,235.83
average tax to age 90
Eliminated 116,025 of tax at death
13,125.17 Average Annual After Tax Income to age
90
Charity
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Corporate Planned Gift and Insured Annuity
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Whats in it for me?

• WIIFM
• All investment income is maintained
• Tax on investment is eliminated at death
• No money out-of-pocket asset shifting
• Establish a major charitable endowment
• Assets are creditor proof
• Opportunity Spotting
• Affluent donors looking for innovative strategies
• Must be in good health to acquire insurance

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Charitable Giving - Summary

• Many different ways to give
• Take a look at the situation and evaluate any
  opportunity for gifts
• Can be very simple or very complex every
  situation is unique
• Call, email, phone or fax with any questions or
  situations that need consultation
• A few simple questions may uncover an otherwise
  overlooked charitable gift

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WIIFM Whats in it for Me?

• New Perspectives on Complex Gifts