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CAGP-ACPDP Conference
Planned Giving Presentation
ROBERT KLEINMAN FCA
Mr. Prospect
Thursday, May 13, 2010 9:30am
LEAVE A LEGACY

The legacy

The movement of the use of assets to
community purposes at death
THE LEGACY DECISION TREE
LEAVE A LEGACY?
WILL BEQUEST
LIFE INSURANCE
GIFT OR REPLACEMENT
TAX HELP
NOT NEEDED
TAX HELP NEEDED
AT DEATH
LIFE INCOME PLANS
ESTATE PLAN
INSURANCE?
WILL BEQUEST


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The will is an expression of final intentions
Charitable gifts
Designated for institution
Designated for use
Endowment, expense, equipment?
Family philanthropy
LEGACY WILL METHOD
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Complete will change or first will to be drawn up
Codicil
Concern over deductibility if institutions not spelled outleave to JCF with trustees
Leave to JCF with a side contract-easier to change
your mind
Is mandate necessary?
TAX EFFECTS OF THE WILL

2 INCREDIBLE PROVISIONS

Will gift deemed to have been made in the year
of death

Donation limit in the year of death (and
preceding year) 100% of income
TAX PLANNING
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Anticipate taxable income on death
Tax shelter?
Will gift!!!!
Taxable income $200,000
Will gift
$200,000
No tax
GIFT ON DEATH INTENTION

No tax need
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Consider life income plans

Why?
Effective gift on death
Receive tax help now

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CHARITABLE REMAINDER TRUST

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Transfer property to a trust today
Income beneficiary during lifetime- donor
(+spouse)
Capital beneficiary
–
–
Lifetime- none
Upon death- charity
CHARITABLE REMAINDER TRUST

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Tax receipt today
PV- (capital,mortality, interest)
Ex. $100,000 male age 78
PV- ($100,000,8.1 years,4.5%)
=$70,010
LIFE INSURANCE

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Leave a larger gift
Or to replace the gift capital for family
Traditional
Charity owner + beneficiary
Donor donates premiums
REPLACEMENT INSURANCE

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Donate $300,000 RRSP’s
Life insurance to estate $300,000
No gift RRSP’s worth $150,000 to family
Insurance proceeds of $300,000 less cost of
premiums,say $75,000
NEW INSURANCE PRODUCTS
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Corporate-owned
Borrow from a bank for premiums and interest
At death proceeds pay off loan
Excess used to fund will gift
CDA substantial
ESTATE PLANNING
Mr. A
proceeds
A co.
Life Insurance
JCF
•Taxable Income:
•Will Gift:
•Tax
$1,000,000
$1,000,000
$0.00
•Tax Savings:
•Insurance Cost:
$480,000
?
ESTATE PLANNING - Illustration
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Corporation to purchase $1,000,000 life insurance policy
on last to die basis
On last to die, donors leave $1,000,000 in their wills to JCF
At the second death, the corporation will receive
$1,000,000 tax free
The corporation will remit $1,000,000 tax free to the estate
to pay will gift
The deceased final tax return will utilize a $1,000,000 tax
receipt from the JCF, saving $480,000 of tax
ESTATE PLANNING - Illustration
Pre se nt va lue of fina ncia l conside ra tions
Life expectancy based on life insurance tables
Estate savings- $ 480,000
12 years at 4.5%
$
283,039
Premium costs
year
1
2
3
4
5
6
7
8
9
10
11
12
$
$
$
$
$
$
$
$
$
$
$
$
premium
37,200
37,200
37,200
37,200
37,200
37,200
37,200
37,200
37,200
37,200
37,200
37,200
$
$
$
$
$
$
$
$
$
$
$
$
$
PV at 4.5%
37,200
35,598
34,065
32,598
31,194
29,851
28,566
27,336
26,158
25,032
23,954
22,923
354,476
ESTATE PLANNING - Illustration
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The cost of life insurance, at present value is
With no life insurance purchase, the corporation
would transfer to the estate $354,476 on which
the estate would pay 24% tax, leaving the
estate with
The estate will save $480,000 on the deceased
final tax return which, at present value
represents
The net cost of creating $1,000,000 of charity is
a saving of
$354,476
$269,402
$283,039
$13,637
PREFERRED SHARES
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$1 million of preferred
Gift to JCF
Insurance on children
Saves $500,000 in cash flow
Continuation of estate freeze
PREFERRED SHARES
Aco
Aco subscribes for preferred shares of Bco
B co. could lend back to A co. at X% int.
Bco
Gift
to
JCF
Owns preferred shares of Bco
Bco
JCF
•Gift to JCF:
•Tax Saving:
•Insurance Cost:
$2,000,000
$1,000,000
?
Insurance
policy
PREFERRED SHARES- Illustration
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CASH FLOW FOR DONOR
–
–
–
–
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$2,000,000
$(402,882)
$1,000,000
$ 597,118
BENEFIT FOR ESTATE
–

Gift of preferred shares
Insurance premiums
Tax savings
Net cost for donor
CDA benefit – tax savings on taxable dividend
TOTAL NET FOR DONOR’S FAMILY
Life expectancy 25years, interest 4.5%
$ 218,638
$ 815,755
MARKETABLE SECURITIES
Tax Advantages
Example:
 Mr. Jones donates $100,000 of Royal Bank of
Canada stock to the JCF
 His alternative is to sell the stock and donate
$100,000
SALE vs. GIFT
Stock Sale
Stock Donation
Combined
Federal
Quebec
Combined
Proceeds
$100,000
$100,000
$100,000
Cost
$50,000
$50,000
$50,000
Capital Gain
$50,000
$50,000
$50,000
Taxable Capital Gain
$25,000
$25,000
$25,000
Special Exemption
($0)
($25,000)
($25,000)
Net Income
$25,000
$0
$0
Income Taxes
Payable
$12,000
$0
$0
Tax Receipt
$100,000
$100,000
$100,000
Tax Savings
$48,000
$24,000
$24,000
$48,000
Net Tax Savings
$36,000
$24,000
$24,000
$48,000
$0
MARKETABLE SECURITIES
CORPORATE GIFTS
Example:
Holdco
makes a gift of $500,000 worth of securities to
the JCF.
Adjusted
Capital
cost base = $0
Gain = $500,000
Tax Implications: Since for Federal and Quebec purposes
there is no taxable capital gain, the full $500,000 flows
through to Holdco’s CDA and can be paid out tax free to
the shareholders of Holdco.
MARKETABLE SECURITIES
POST MORTEM TAX PLANNING
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Deemed disposition of all assets on death.
Gifts made in the will are deemed to be made
in the year of death.
Full amount of donation receipt to be applied to
reduce taxes in the year of death.
Reduce death taxes by donating marketable
securities.
POST MORTEM TAX PLANNING
CONTINUED
Example:
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Value of estate: $2,000,000
ACB of assets: $500,000
Estate includes marketable securities:
$500,000
ACB of Securities: $250,000
Taxable: $750,000
Solution: Will gift of marketable securities
POST MORTEM TAX PLANNING
CONTINUED

Will to provide that on death – marketable securities to
be gifted to the JCF.

Effect:
Estate gets tax receipt for $500,000 applied to reduce
taxes on $750,000 to $250,000 in year of death.
For Federal and Quebec purposes, the entire capital
gain of $250,000 is not taxable.
Estate can make a significant gift at relatively low cost.
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MARKETABLE SECURITIES
FLOW THROUGH SHARES
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Donor may purchase resource (mining or oil
and gas) partnership units, convert the units
into shares and then donate these shares to a
charity.
Flow- thrus
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Public ruling
Combination of 2 incentives
Popular today
example
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Acquisition
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Federal 211423 x .2422
51,207
Quebec 211423 x 150% x .24
Federal credit .15 x 211423
Income inclusion 31,713 x .2422
Donation 117,457 x .4822
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Net cost
Charity receives
Fees to sell
Net charity
$211,423
76,112
31,713
-7,681
56,638
$3,434
$117,457
17,457
$100,000
issues
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Must do exploration
Value of receipt- high fees
Need lots of taxable income- AMT
corporate
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100% write off only
CDA account huge
Cost 20 cents
After cda value -negative