The human spirit is incredible, and often when others are facing hardship people rise to the occasion to help and empower them. Life brings different challenges, and some people require assistance as a result. Whether it’s financial, physical, or mental support, these positive acts of kindness facilitated by charitable organizations can truly help those who are struggling to find comfort during a difficult time. From helping a family put food on their table to caring for orphaned animals, and everything in-between, there are many important causes to support.
If you’ve ever been on the receiving end of this generosity, then you already know how important it is to pay it forward. In that spirit, the Canadian Association of Gift Planners (CAGP) has named the month of May as Leave a Legacy Month. This month is dedicated to encouraging more people to consider leaving a legacy contribution in their estate planning, which means to leave a monetary gift to their favourite charitable organizations.
With over 85,000 charities registered with the Canada Revenue Agency, it’s evident that there are many people who need help.1 Research shows that Canadians are quite philanthropic already, giving $14 billion to charities yearly.2 Yet as decades pass, Canadians have been giving less and less despite the overall population increasing.1Trends show that older people are the most common donors, as a result of having deeper pockets, while millennial donors have some catching up to do because of limited financial power.1
Charities need donations from people like you, in order to continue their meaningful work. Without you, these programs that sustain human enrichment wouldn’t be possible. Donating can make a difference in the lives of those in need. Even donating a small amount for example can add up if everyone does it and can make a big difference.
Leave a planned gift in your estate to ensure your life values live on forever.
What is estate planning?
Estate planning is the process of preparing for the transfer of your wealth and assets after your death. Your estate consists of retirement accounts, cash on hand, life insurance, pensions, property you own, cars, personal belongings, and debts.
The goal of Leave a Legacy month is for more people to leave a planned gift to a charity of their choice when they pass away. There are a few ways you can make leaving a legacy part of your estate planning:
- You can leave a portion of your life insurance death benefit
- You can leave a share of your assets
- You can leave a fixed sum of money
- You can leave a specific item of value
If you decide to leave a legacy gift through life insurance, then there are more options than simply leaving a portion of your death benefit. Another option for legacy contribution is by donating your entire life insurance policy to charity:
- Take out a new policy in the name of the charitable organization.
- Transfer ownership of an existing policy to the charity.
Benefits of Leaving a Legacy through Life Insurance
Continue to protect your loved ones
One of the reasons you may be hesitant to leave a legacy is because you want your death benefit to protect your loved ones when you pass away. However, it’s important to keep in mind that you can still financially protect your dependents, while donating to a cause you care about. Depending on the amount of coverage and how you determine your beneficiaries you can have the comfort of knowing your loved ones will have enough money to pay off expenses when you pass away, and you will be able to leave behind a meaningful gift to your favourite charity.
Increase charitable donation
Give a charity the support it needs to thrive with a larger donation versus leaving smaller donations to various charities. This means it can potentially be used to make an even bigger impact to a charity of your choice and help them to reach their goals faster.
Save on taxes and other costs
Depending on how you leave your legacy through life insurance, you may be able to take advantage of tax savings and other costs:
If you name the charity as a beneficiary to your life insurance policy, the death benefit qualifies as a tax credit on your income tax return. Although, keep in mind that in this case, the premiums for the life insurance policy are not eligible for a tax credit. Since there is a direct beneficiary assigned, the life insurance death benefit will bypass the estate and avoid any probate fees (cost to validate a will). This means the charitable organization receives the full amount and your gift isn’t subject to taxes.
In the second scenario, if you name your estate as the beneficiary to your life insurance policy and leave instructions on where to donate the death benefit, you won’t take advantage of as much tax savings. Similarly, the premiums would not be eligible for a tax credit. However, the death benefit would qualify as a donation giving your estate a tax credit on the final income tax return. It is important to note that the amount would not be protected from probate fees, since the death benefit becomes part of the estate.
Lastly, if you decide to transfer ownership of your life insurance policy to a charity it will allow your yearly premiums to qualify for a tax credit right away. However, since you are no longer the policyowner the death benefit will no longer qualify for a tax credit.
Navigating taxes and other costs for leaving a legacy may seem overwhelming. Consider speaking with your financial advisor, accountant or lawyer to make the most appropriate choice for your situation.
Change your beneficiary anytime
Through-out your lifetime, you may support different causes or charities. Life changing events may cause you to shift your views. By leaving a legacy through life insurance, you have the flexibility to change you beneficiaries at any time, if you decide you want to give it to a different charity/cause later you have the flexibility to do so.
Life Insurance Options for Planning Your Legacy
If you are considering using a life insurance policy to leave a planned legacy gift, then it will be helpful to understand your options:
Considerations for your beneficiaries
In most provinces (other than Quebec) you can assign your beneficiaries to direct assets such as RRSPs, RRIFs and even your life insurance policy. When you do this, the beneficiaries designated directly will override the beneficiaries named for the same assets in your will.
For example, if you are planning on leaving a legacy through life insurance, make sure that you have given your insurance provider the correct beneficiary to your death benefit. Even if you change the beneficiary of your life insurance policy on your will, your estate lawyers will fulfill your wishes using the designated beneficiary of the actual policy.
As a result, it is important to keep your designated beneficiaries of your life insurance updated and current. If you decide to change your life insurance beneficiary to a different charity in your lifetime, prioritize changing it on the policy.
How to Decide Where to Leave Your Legacy
It may be a difficult decision trying to determine which charitable organization you want to leave a gift to. If you need some ideas, explore this list of charities to see if any of these causes and values resonate with you.
Here are a few other ways to decide where to leave your legacy:
A cause you’re passionate about
You may not have a charity organization that comes to mind immediately. Start by thinking about if there a cause you are passionate about? Perhaps you are an active supporter of environmental initiatives, human rights, animal rights, disease reduction etc. This may lead you to discovering which charitable organization to Leave your Legacy to.
A charity or event you volunteer at
If there is a charity you volunteer with currently, this could be a sign that they would be a good organization to Leave your Legacy to. If you already dedicated time to their mission, then this may be the charity that you will want to support even after passing away.
A charity you make regular donations to
Do you currently make regular donations to a charity? For example, a regular donor of the Alzheimer’s Society. If you are regularly making donations, then it shows that this cause may be dear to your heart and that you care about the work this organization is doing. Consider continuing your donations by leaving your legacy to this charity.
An educational institute you were an alumnus of
If you are a proud former student of a specific University/College, consider leaving a legacy to this institution. You may view this institution fondly, and as an important chapter of your life. By leaving a legacy, this could support a scholarship program, academic research, or continue to improve programming/activities for students.
Should you Leave a Legacy through your life insurance policy?
Give the charity that means the most to you an opportunity to continue to work towards their mission. Life insurance is one of the best ways to leave a planned gift to your favourite charity.
As a policy holder with Canada Protection Plan you may be eligible for complimentary member benefits such as Law Assure*. This online document preparation service helps create customizable wills, powers of attorney and healthcare directives. Speak with your advisor or contact Canada Protection Plan about looking after your loved ones and your legacy.
* Not available in Quebec, the Territories and Nunavut.