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John Jordan, CFP Certified Financial Planner. Website: www.johnjordan.ca. Providing… Estate Planning  Charitable Gift Planning  Business Succession Planning. WIIFM – What’s in it for Me?. New Perspectives on Complex Gifts. Topics. Why Charitable Gift Planning - the WIIFM factor

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Wiifm what s in it for me

John Jordan, CFP

Certified Financial Planner

Website: www.johnjordan.ca

Providing… Estate Planning Charitable Gift Planning Business Succession Planning

WIIFM – What’s in it for Me?

New Perspectives on Complex Gifts


Topics
Topics

  • Why Charitable Gift Planning

    - the WIIFM factor

  • Current gifts through asset transformations

    • Use of Charitable Gift & Insured Annuities

      • To increase income and provide a major gift now

      • To maintain income and provide a major gift now

  • Charitable Planned Gifts

    • Case Study

    • Using Life Insurance effectively

    • Gift Planning for business owners


Charitable gift planning case study

John Jordan, CFP

Certified Financial Planner

Website: www.johnjordan.ca

Providing… Estate Planning Charitable Gift Planning Business Succession Planning

Charitable Gift Planning – Case Study

New Perspectives on Complex Gifts


Case study details
Case Study – Details

  • Jack & Jill Giving – mid sixties and are mostly retired with 4 grown children

  • Income sources: work pension, OAS, CPP, and investment income. RRSPs are being deferred until age 69.

  • Assets include their home and contents and a family cottage

  • Have not done any significant estate planning outside of their Will

  • Were unaware of the amount of tax payable in their estate


Case study details1
Case Study – Details

  • Had attended a presentation on charitable gift planning which introduced the strategy of using insurance to magnify a gift

  • They had pondered this idea almost 2 years before proceeding to the next step

  • Their thought was to use $15,000 earmarked for the university and purchase a $75,000 life insurance policy.

  • The discovery process then began


Case study details2
Case Study – Details

  • It was discovered that Jack & Jill had 6 charities to share in $50k in their estate

  • Jack’s father had recently passed away and left them a sizeable inheritance

  • They wanted to explore how to integrate their charitable bequests with their estate planning

  • Info and facts were gathered, a dollar figure was allotted for this program and the analysis process began


Goals
Goals

  • Reduce tax in the estate and during retirement

  • Magnify charitable bequests

  • Maintain income level

  • Fairness to children in the estate

  • Keep the process simple



Present situation1
Present Situation

  • Maximum tax paid to CRA in the estate

  • Minimum amount in charitable bequests

  • All non-registered investments exposed to tax, except where deferrals are available

  • If more is left to charity, less tax is paid in estate, but less goes to heirs


New strategy
New Strategy

  • Jack and Jill wish to use $80,000 from Jack’s father’s estate for an insurance program for their charitable and estate planning

  • These funds will purchase a $400,000 Joint 2nd-to-Die Universal Life Insurance plan

  • The funds will be deposited into the plan over a 4 year period.

  • They will designate the charities as beneficiary of $250,000 of the insurance policy with the remainder paid to their children

  • Jack and Jill must revise their Wills in order to reflect their new plan



New estate charitable plan1
New Estate & Charitable Plan

  • Amount left to Charity increased from $50,000 to $250,000

  • Amount left to CRA decreased from $324,242.80 to $178,149.98

  • Amount left to family increased from $1,624,642.34 to $1,706,503.40


What s in it for me
What’s in it for me?

  • WIIFM

    • Annual taxable income is lowered

    • Tax in estate is lowered significantly

    • No money “out-of-pocket” – shift in assets

    • Estate is preserved for heirs

    • Establish a major charitable endowment

  • Opportunity Spotting

    • Donors looking for innovative planned giving strategies

    • Existing Donors who may have made cash bequests in their Will

    • Must be in good health to acquire insurance


Charitable gifts insured annuities

John Jordan, CFP

Certified Financial Planner

Website: www.johnjordan.ca

Providing… Estate Planning Charitable Gift Planning Business Succession Planning

Charitable Gifts & Insured Annuities

New Perspectives on Complex Gifts


What is an annuity
What is an Annuity?

  • A series of payments either for a certain period of time, or for life, in exchange for a lump sum deposit – reverse mortgage

  • Payments are a blend of principal and interest guaranteed for life or a term certain period

  • Payments can be based either on a single life or joint lives

  • Payments may be level or indexed


What is an annuity1
What is an Annuity?

  • Level payments with prescribed taxation are most common.

  • Guarantee payment periods can be integrated to ensure return of deposit

  • Longer guarantee period, lower payments and vice versa

* Annuity quote based on rates as of March 28, 2005


Examples of annuities
Examples of Annuities

  • Canada Pension Plan

  • Old Age Security

  • Retirement pensions


Charitable annuities new administration
Charitable AnnuitiesNew Administration

  • Simplified process – for annuities after December 20th, 2002

  • Tax receipt for the full amount of gift

  • Annuity is based on prescribed taxation – T4A for a prescribed amount annually for life

  • Donor remains the owner of the annuity and the charity may be named as revocable beneficiary of any remaining annuity payments after the death of the donor

  • Establishing the annuity this way, a tax receipt can be issued to the donor’s estate for the remaining payments, if any.


Charitable Gift & Insured Annuity- DemographicsINCREASE Annual Income while providing a Major Gift Now!

  • For those who would like to donate a significant gift now, but not suffer in reduction of income

  • Three main components:

    • A cash gift now

    • A commercial annuity

    • A life insurance policy

  • Donors in their early 60’s and older

  • Those who have other retirement income sources

  • Those who are looking to increase income stream and have a guaranteed fixed income portion of their portfolio

  • Want to preserve capital for their heirs


Gift of cash
Gift of Cash

  • Female – age 75

  • Capital Amount - $200,000

  • Current 5 Year GIC – 3.60%

  • Marginal Tax Rate – 46.41%


Charitable gift insured annuity comparison
Charitable Gift & Insured Annuity Comparison

  • Female – age 75

  • Capital Amount - $200,000 ($150,000 after Gift)

  • Current 5-Year GIC – 3.60%

  • Marginal Tax Rate – 46.41%

  • Annuity quote based on rates as of March 28, 2005 – 1-year guarantee payment period


Charitable gift insured annuity comparison1
Charitable Gift & Insured Annuity Comparison

  • Female – age 75

  • Capital Amount - $200,000 ($150,000 after Gift)

  • Current 5-Year GIC – 3.60%

  • Marginal Tax Rate – 31.15%

  • Annuity quote based on rates as of March 28, 2005 – 1-year guarantee payment period


Charitable Gift & Insured Annuity- DemographicsMAINTAINAnnual Income while providing a Major Gift Now!

  • For those who would like to donate a significant gift now, but not suffer in reduction of income

  • Three main components:

    • A cash gift now

    • A commercial annuity

    • A life insurance policy

  • Donors in their early 60’s and older

  • Those who have other retirement income sources

  • Those who are looking to maintain income stream and have a guaranteed fixed income portion of their portfolio

  • Want to preserve capital for their heirs


Charitable gift insured annuity maintain annual income while providing a major gift now
Charitable Gift & Insured AnnuityMaintain Annual Income while providing a Major Gift Now!

  • Jill Giving is 73 years young and in great health

  • She has 3 grown children, and was recently widowed after her husband, Jack, died from a lengthy illness

  • Her retirement income is made up of;

    • work pensions (both her’s and Jack’s),

    • a RRIF,

    • GICs,

    • T-Bills,

    • an equity investment portfolio,

    • Old Age Security (reduced due to OAS clawback) and

    • Canada Pension Plan


Charitable gift insured annuity maintain annual income while providing a major gift now1
Charitable Gift & Insured AnnuityMaintain Annual Income while providing a Major Gift Now!

  • Jill would like to make a sizeable donation to her and Jack’s favourite charities

  • However, she would have to give up a good portion of interest income

  • Jill has $500,000 of GICs averaging 4.00% return;

    • Annual Interest $20,000.00

    • Annual Income Tax $8,682.00

    • After Tax Income $11,318.00

  • Jill wonders how she can maintain income and make a gift to the charities

  • She also wants to leave her estate in tact as much as possible for her children and grandchildren.


Charitable gift insured annuity maintain annual income while providing a major gift now2
Charitable Gift & Insured AnnuityMaintain Annual Income while providing a Major Gift Now!

  • Here’s what Jill can do:

    • Make immediate gift of $150,000 to the charities

    • Purchase a prescribed life annuity with $350,000 of her GICs

    • Purchase a $500,000 Term-100 Life Insurance plan to replace capital to her heirs

    • OAS clawback is reduced due to the prescribed annuity, resulting in an after tax income to $12,036.72

    • Immediate tax savings of $69,615.00(5-year carry forward if needed)


Charitable gift insured annuity maintain annual income while providing a major gift now3
Charitable Gift & Insured AnnuityMaintain Annual Income while providing a Major Gift Now!


What s in it for me1
What’s in it for me?

  • WIIFM

    • Higher after-tax income for life

    • Possible reduction in claw-back in OAS

    • $1,000 Pension Tax Credit (if not already being claimed)

    • Large tax receipt for instant tax savings

    • Can see the gift working during lifetime

    • No more re-investment risk

    • Reduction of large amount of probate fees with the use of life insurance

  • Opportunity Spotting

    • Would like to make a major gift – unsure how?

    • Concerned with preserving capital for heirs

    • Have their open investments in low-paying GICs or Bonds

    • Have had investment capital eroded by low or negative market returns and inflation

    • Need or would like to increase income


Gifts of life insurance

John Jordan, CFP

Certified Financial Planner

Website: www.johnjordan.ca

Providing… Estate Planning Charitable Gift Planning Business Succession Planning

Gifts of Life Insurance

New Perspectives on Complex Gifts


Gifts of life insurance1
Gifts of Life Insurance

  • Gifts of life insurance can greatly magnify a Charitable Planned Gift

  • A donor may gift an existing life insurance policy or purchase a new one

  • Existing or new policies that are gifted while living:

    • The charity is made owner and beneficiary of the policy

    • A donation receipt is issued as future premiums paid

    • For existing policies, receive a donation receipt for the cash value (if any…a taxable disposition may occur)

    • No receipt is issued for the death benefit


Gifts of life insurance2
Gifts of Life Insurance

  • Policies that are gifted at death:

    • The donor remains as the owner of the policy and names the charity as the revocable beneficiary

    • Receive a donation receipt for the death benefit proceeds that are gifted

    • No receipt is given for premiums that are paid during the donor’s lifetime

    • This receipt can then be used to offset taxes owing in the estate

    • Structured properly, all taxes may be eliminated in the estate


Gifts of life insurance3
Gifts of Life Insurance

  • Mike & Anita, age 65, concerned with amount of tax owing in their estate

  • Want to preserve their estate for their family but also provide a Charitable Gift

  • Have sufficient retirement income from RRIFs, work pensions, CPP, and OAS

  • Have designated $75,000 to their charity which is set aside in T-Bills

    • Interest is taxed annually

  • They have $350,000 in RRIFs between them

  • Potential tax liability of $162,435 on RRIFs

  • Need to re-structure their affairs and look into alternative ways of charitable gifting


Present Situation

Tax on

Annual interest

RRIF

$350,000

T-Bills

$75,000

Family

Tax receipt for $75,000

$222,372 after tax to heirs

$127,628 taxes


Gifts of life insurance4
Gifts of Life Insurance

  • Their bequest can be greatly enhanced and their estate preserved with the use of a “Joint-2nd-to-die” estate universal life insurance plan.

  • Perform an “Asset Shift” by moving the $75,000 into the estate insurance plan over 3 years - $25,000 per year

  • The RRIF may be left to the charity – tax free after the donation receipt

  • The life insurance plan is left to their family – tax free


New Situation

RRIF

$350,000

$75,000 T-Bills

Life Insurance

$300,000

Tax-Free after

Donation receipt

$374,025* Tax-Free

Family

Tax receipt for $350,000

$0 taxes

Projected Death Benefit in 20 years – $300,000 of insurance plus investment account


Gifts of Life InsuranceNew Situation

  • Amount left to family increased from $222,372 to $374,025

  • Amount left to Charity increased from $75,000 to $350,000

  • Amount left to CCRA decreased from $127,628 to $0


What s in it for me2
What’s in it for me?

  • WIIFM

    • Both their current and estate status’ are in a better financial position

    • Larger tax receipt in the estate to offset other tax owing

    • Lower tax during retirement

    • Reduction of large amount of probate fees with the use of insurance

  • Opportunity Spotting

    • Bequests of cash

    • Donors may have the financial assets for a planned gift but don’t know it

    • Annual donors who would like to explore further

    • Must be in good health to acquire insurance


Corporate charitable gift and insured annuity

John Jordan, CFP

Certified Financial Planner

Website: www.johnjordan.ca

Providing… Estate Planning Charitable Gift Planning Business Succession Planning

Corporate Charitable Gift and Insured Annuity

New Perspectives on Complex Gifts


What is a corporate planned gift and insured annuity
What is a Corporate Planned Gift and Insured Annuity

  • A strategy designed to create a sizable Charitable Planned Gift while maintaining income and lowering tax at death.

  • 3 elements

    • Non-prescribed Life Annuity

    • Life Insurance

    • The use of section 118 of the Income tax act

  • Putting all of the elements together will benefit not only the donor and their corporation but the charity(s) as the beneficiary

  • Avoid all tax possible – evade none!


  • Corporate planned gift and insured annuity
    Corporate Planned Gift and Insured Annuity

    • Mr. Widget, a healthy and young age 67, owns 100% of WidgetCo and has interest bearing investments held in the corporation of $500k invested at 5.00%.

    • Tax on investments held in a corporation (non-business income) range from 47.79% - 52.79% - use an average of 50.00%



    Corporate planned gift and insured annuity2
    Corporate Planned Gift and Insured Annuity

    • Mr. Widget acquires a “non-prescribed” life annuity with the $500,000 of capital

    • To replace the capital upon death, Mr. Widget purchases a $500k Insurance plan - $16,380/year

    • To create a charitable gift, Mr. Widget purchases a $400k Insurance plan and assigns it to the charity – to the corporation, receives a deduction for the $13,258 premium annually – net cost of $6,629/year

    • This strategy will provide the same income and significantly lower tax at death


    Corporate planned gift and insured annuity3

    $500,000 Life Insurance

    Replace Capital

    Tax Free

    $400,000 Life Insurance

    Gifted to Charity

    Tax deductible

    Corporate Planned Gift and Insured Annuity

    WidgetCo

    $500,000

    Investment

    Non-prescribed Annuity

    $42,370/year

    $6,235.83 average tax to age 90

    Eliminated $116,025 of tax at death

    $13,125.17

    Average Annual After Tax

    Income to age 90

    Charity



    What s in it for me3
    What’s in it for me?

    • WIIFM

      • All investment income is maintained

      • Tax on investment is eliminated at death

      • No money “out-of-pocket” – asset shifting

      • Establish a major charitable endowment

      • Assets are creditor proof

    • Opportunity Spotting

      • Affluent donors looking for innovative strategies

      • Must be in good health to acquire insurance


    Charitable giving summary
    Charitable Giving - Summary

    • Many different ways to give

    • Take a look at the situation and evaluate any opportunity for gifts

    • Can be very simple or very complex – every situation is unique

    • Call, email, phone or fax with any questions or situations that need consultation

    • A few simple questions may uncover an otherwise overlooked charitable gift


    Wiifm what s in it for me1

    John Jordan, CFP

    Certified Financial Planner

    Website: www.johnjordan.ca

    Providing… Estate Planning Charitable Gift Planning Business Succession Planning

    WIIFM – What’s in it for Me?

    New Perspectives on Complex Gifts