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I have been working for over a decade with a couple in their 70s. The relationship has evolved into much more than just a financial advisory one as over the years we have together dealt with many family issues. At this point, as part of the services provided, I attend to ensuring bills for their extended family get paid, including university tuitions for their grandchildren. Several years ago, as part of their investment portfolio, we invested in an insured annuity strategy – the purchase of an annuity paired with the purchase of an insurance policy of equivalent face value to replicate a GIC with a maturity date at death.
Although mostly retired, the couple earn passive income and some consulting income which poses a continuing tax issue each year. Over the years we have attempted to address this issue using various means of deferrals and income deductions.
Several years ago
the family had created a donor-advised fund at the Jewish Foundation of Greater Toronto in order to facilitate the timing differential between the tax need and the charitable intent.
The funds were divided between a shorter term Donor Advised Fund and a perpetual endowment fund. In the course of our discussions, we considered the long term impact a significant gift could have to the causes they choose to support and the community at large. Intent on minimizing current taxes, and making a donation as efficiently as possible, we separated out the annuity from the insurance policy and had it appraised. Satisfied with the result, the family assigned the ownership and beneficiary of the policy to the Jewish Foundation for significant current year tax benefits. The only issue outstanding though, was that the policy – which was until now being paid out of the income generated by the annuity - still required annual premium payments. With the Jewish Foundation as the new owners, the agency would be on the hook each year for these payments. We wanted to make this a “one and done” situation, whereby the Jewish Foundation would not have to call the family each year to have them make the annual premium payment.
The solution was found – the couple donated appreciated securities to the charity in an amount sufficient to provide the charity with the funds needed to purchase an annuity on the donor’s life, in an amount that would produce the annual payments necessary to fund the premiums on the insurance policy and to pay the expenses associated with the appraisals.
The result was significant current year tax benefits for the donor, a significant insurance policy donated for the benefit of the community, and through the structure employed, assurance that the funds are in place for continual premium payments to ensure the charity incurred no costs. A win-win result.
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