Many options to maximize tax savings on charity are being left on the table, says charitable giving expert
For financial planners, using life insurance for charitable giving isn’t exactly a new strategy. But with countless advisors still not applying and discussing the strategy at their own practices, there’s still a large gap in philanthropic giving yet to be filled.
“The advisor is the gatekeeper, so unless an advisor talks to their clients about it, they're just not going to know,” says Mark Halpern, CEO of WEALTHInsurance.com. “I think that's a missed opportunity for advisors to develop really tight relationships and help their clients create legacies.”
Canadians not maximizing their philanthropic giving
As a veteran of the industry and expert in life insurance based-giving, Halpern says the vast majority of Canadians don’t know how to use life insurance as a tax-efficient way to create charitable gifts. He estimates 96% of the population are still making donations using cash, checks, and credit cards – the least tax-effective means to donate.
“I'd like to see people incorporating strategic philanthropy using life insurance into their estate planning,” Halpern says. “If someone is planning to donate $2 million worth of assets from their RRSPs or RRIFs upon death, they’d have to pay estate taxes to the tune of over $1 million on that first. Wouldn’t it be better to set up a $2-million life insurance gift to charity – for pennies on the dollar or on a cash flow-neutral basis – and upon your passing, have that million dollars in tax go to charity instead?”
Life insurance-based planning could also help address the issue of the alternative minimum tax (AMT), a regime of higher tax rates for higher-income Canadians that the federal government updated as part of its federal budget this past spring.
In the wake of that update, tax professionals raised numerous concerns, including the potential chilling effect of AMT on high-net-worth Canadians’ charitable giving intentions. By donating the death benefit on a life insurance policy to charity, Halpern says affluent Canadians can mitigate the impact of AMT on their giving, as there’s no AMT applied on death.
“Another way to do good is where the donor confers ownership of the life insurance policy to the charity from the get-go, and the donor pays for all or some of the premiums,” he says. “In that case, the donor’s premium payments are considered charitable donations, and they get a charitable receipt for that. That also empowers you as a donor to create a gift of anywhere between five to 20 times larger than the net cost of the premium that you paid.”
New products and programs
Canada Life introduced an even more impactful option for charitable Canadians earlier this year. Developed in partnership with the Canadian Association of Gift Planners, My Par Gift allows charitable Canadians to designate a registered charity as the owner and beneficiary of the policy and all its associated benefits, including yearly dividends. By claiming a charitable receipt for the one-time premium payment on the policy, donors can also mitigate up to 75% of their net taxable income.
“The interest [in My Par Gift] has been incredible,” says Halpern, who’s hosted webinars attended by hundreds of advisors wanting to learn how to use it in their practices. “But unless advisors have a strategy in place, or a runway, on how to introduce this product to their clients and prospects, it’s just going to sit on the shelf.”
Earlier this month, Quebec-based insurance and investment brokerage firm Groupe Cloutier unveiled a charitable life insurance program called J’assure ma cause. Available in Quebec, Ontario, and New Brunswick, the program allows donors to take out a life insurance policy – they’ll still pay the premiums and be able to claim the associated charitable tax credits – and designate the charitable organization of their choice as a policyholder and beneficiary.
As Halpern sees it, the J’assure ma cause program isn’t offering anything new in terms of insurance-based giving. However, he does say that “whatever gets clients to give attention around insurance planning for charitable giving is very good for them, the industry and for charity.” He hopes their marketing program will work very well but still insists that charitable planning has to be discussed as part of someone’s comprehensive estate planning.
“It's certainly better than nothing in terms of helping people understand that insurance is a fantastic tool to leverage in giving to charity,” Halpern says. “All news is good news as long as it gets people thinking and drives that conversation.
“I really feel that this is what's missing in our industry. … There's no reason that we should not be collectively creating a billion dollars of charity every year, given our products and what they can do. All we have to do is train our salesforce and advisors.”