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CAGP-ACPDP ConferencePlanned Giving Presentation
ROBERT KLEINMAN FCA
Mr. Prospect
Thursday, May 13, 2010 9:30am
THE LEGACY DECISION TREE
LIFE INCO M E PLANS
TAX HELPNO T NEEDED
ESTATE PLANINSURANCE ?
TAX HELP NEEDEDAT DEAT H
W ILL BEQ UEST LIFE INSURANCEG IFT O R REPLACEM ENT
LEAVE A LEG ACY?
WILL BEQUEST
The will is an expression of final intentions Charitable gifts Designated for institution Designated for use Endowment, expense, equipment? Family philanthropy
LEGACY WILL METHOD
Complete will change or first will to be drawn up Codicil Concern over deductibility if institutions not spelled out-
leave 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
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
Consider life income plans
Why? Effective gift on death Receive tax help now
CHARITABLE REMAINDER TRUST
Transfer property to a trust today Income beneficiary during lifetime- donor
(+spouse) Capital beneficiary
– Lifetime- none– Upon death- charity
CHARITABLE REMAINDER TRUST
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
Leave a larger gift Or to replace the gift capital for family
Traditional Charity owner + beneficiary Donor donates premiums
REPLACEMENT INSURANCE
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
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
A co.
Life Insurance
JCF
proceeds
Mr. A
•Taxable Income: $1,000,000•Will Gift: $1,000,000•Tax $0.00
•Tax Savings: $480,000•Insurance Cost: ?
ESTATE PLANNING - Illustration
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 $480,000 of tax
ESTATE PLANNING - IllustrationPresent value of financial considerationsLife expectancy based on life insurance tables
Estate savings- 480,000$ 12 years at 4.5% 283,039$
Premium costs
year premium PV at 4.5%1 37,200$ 37,200$ 2 37,200$ 35,598$ 3 37,200$ 34,065$ 4 37,200$ 32,598$ 5 37,200$ 31,194$ 6 37,200$ 29,851$ 7 37,200$ 28,566$ 8 37,200$ 27,336$ 9 37,200$ 26,158$
10 37,200$ 25,032$ 11 37,200$ 23,954$ 12 37,200$ 22,923$
354,476$
ESTATE PLANNING - Illustration
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
$1 million of preferred Gift to JCF Insurance on children Saves $500,000 in cash flow Continuation of estate freeze
PREFERRED SHARES
Aco BcoAco subscribes for preferred shares of Bco
JCF BcoOwns preferred shares of Bco
•Gift to JCF: $2,000,000•Tax Saving: $1,000,000•Insurance Cost: ?
Insurance policy
B co. could lend back to A co. at X% int.
Gift
to
JCF
PREFERRED SHARES- Illustration
CASH FLOW FOR DONOR– Gift of preferred shares– Insurance premiums– Tax savings– Net cost for donor
BENEFIT FOR ESTATE– CDA benefit – tax savings on taxable dividend
TOTAL NET FOR DONOR’S FAMILY Life expectancy 25years, interest 4.5%
$2,000,000
$(402,882)
$1,000,000
$ 597,118
$ 218,638
$ 815,755
MARKETABLE SECURITIESTax 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 $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
Example:
Holdco makes a gift of $500,000 worth of securities to the JCF.
Adjusted cost base = $0
Capital 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 SECURITIESCORPORATE GIFTS
MARKETABLE SECURITIES POST MORTEM TAX PLANNING
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: 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.
MARKETABLE SECURITIES FLOW THROUGH SHARES
Donor may purchase resource (mining or oil and gas) partnership units, convert the units into shares and then donate these shares to a charity.
example
Acquisition $211,423
Federal 211423 x .2422 51,207 Quebec 211423 x 150% x .24 76,112 Federal credit .15 x 211423 31,713 Income inclusion 31,713 x .2422 -7,681 Donation 117,457 x .4822 56,638
Net cost $3,434 Charity receives $117,457 Fees to sell 17,457 Net charity $100,000