How can you leave a legacy for less money? Here is one way of making a major charitable contribution, even if you are not wealthy.
As an example, let’s say you are 50 and in decent health (assuming a 35 year life expectancy). You are able donate $1,000 a year to your favourite charity.
Here is what you could do:
With a donation amount of $1,000 a year, this would cost you $550 per year after tax credits.
The total is $19,250 over a 35 year period that would come out of your pocket. Using our strategy, you could actually end up donating $162,000 to your favourite charity! This is an effective rate of rate (after tax credits) of 10%!
Shouldn’t it be a total of $35,000 that the charity would receive ($1,000 a year for 35 years)?
Where does the $162,000 amount come from?
The $162,000 gift comes from a life insurance contract, with the charity as the beneficiary and owner of the policy. Each year, the premiums on the life insurance is about $1,000 in total, so instead of giving directly to the charity, you keep the insurance. The payout on this insurance is $162,000 upon death. If you had $10,000 a year premiums, you could afford to give almost $2-million.
The only issue is that the charity will not receive your donation until the end of the 35 year period.
Alternatively, you could make it a gift to a parent and benefit the charity even sooner!
If you wish to give sooner and witness the benefits, you can use the same strategy (with the same charity as the beneficiary), but take out the life insurance on one of your parents.
For example, a 50 year old may have a 72 year old mother in decent health. The charity would most likely benefit sooner, you would be able to witness the donation. This can also be a great gift to a parent who feels close to their house of worship or a particular charity.
Here is an example where you put in $2,000 a year into a plan for your 72-year old mother if she survives to the age of 87.
Suppose now you can afford to give $2,000 a year to your charity. It is costing you $1,100 a year to do this (after you factor in tax credits) or $16,500 over the 15 year period.
The total gift possible now, with the life insurance strategy would actually be $49,000 (after tax credits) and the rate of return is 12.7%!
If you are interested in leaving a legacy or making a large charitable contribution, do not assume your wealth does not permit it. A life insurance policy is a great way to maximize the amount of contribution possible for you. All you need to do is shop around for the most effective type of guaranteed life insurance that permits this strategy at the most competitive rates.
http://tridelta.ca/The-Canadian-Financial-Planner/2011/05/how-to-leave-legacy-affordable-giving/