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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.
slide19
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
slide23
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)
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
slide33

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
slide35

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

slide36

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