Charitable Insured Gift Annuity
The charitable insured gift annuity strategy typically combines an immediate charitable contribution, a life annuity and life insurance.
Here is how it works. A donation is made to the charity of your choice. Based on the target income you would like to achieve, we then determine the funds required to purchase a life annuity that will pay out mostly tax free guaranteed monthly income payments for life. We then take out a permanent life insurance policy with a death benefit at least equivalent to the funding required to purchase the life annuity. The life insurance will replace the funds used to create the annuity so that your estate is preserved to support the desired inheritance for your children.
For instance, say a 65 year old couple have significant stock and mutual fund investments which they stress over after seeing their value collapse in late 2008. They have determined that they need $6,000 more "pensionized" guaranteed income per year to supplement her CPP and OAS. They would also like to give an immediate $25,000 gift to their local library. They are also concerned about preserving some of their funds to leave to their grandchildren to support their education.
A charitable insured gift annuity would satisfy all of her goals. At their age, about $100,000 of their existing investments would be required to fund a joint life annuity that would pay a little more than $6,000 a year until they both have passed. Ownership of $25,000 in stocks or mutual funds would be transferred at market value, to the library (and avoid unrecognized capital gains). A $100,000 joint-last-to-die Universal Life insurance policy would be taken out to provide for the desired inheritance with the $1,500 annual premium being funded by the $11,250 charitable tax credit and later on by the life annuity income.
All of the couple's goals would be achieved. They have "pensionized" part of their investment portfolio to provide a guaranteed $6,000 annual, mostly tax exempt income for life; they have supported the library now and they have insured that money will be left for their grandchildren's education ... a far better result than living off low interest GICs, paying tax on any income earned and not bestowing any gift to the library. Our web site "Library" has a case study that demonstrates the benefits even more clearly.
Charitable insured gift annuities, under the right circumstances, can provide wonderful results. Contact us and we'll evaluate what giving strategy meets your goals and financial plans most effectively.
