The following is a story about creating unbelievable value with charitable contributions by simply structuring it efficiently. In our case study below we demonstrate how the charity of your choice can receive $1 million donation that will only cost the donors a fraction of this.
We have changed names, but detail a real life example of a charitable contribution strategy we implemented with a client recently.
Joe and Susan were able to make better use of their hard earned money and leave a significant legacy to the Alzheimers Society, here is their story:
Joe and Susan were heading into a new phase in their life as retirement approached. Their goals:
- 1. Maintain their lifestyle in retirement without fears of running out of money.
- 2. Travel frequently.
- 3. Pay as little tax as possible.
- 4. Help advance Alzheimer’s research to rid the world of this cruel disease.
They approached us to devise an efficient plan, which revealed a few key points:
- They will not outlive their money, but would likely have a $2 million Estate and a lifetime tax bill of $530k.
- They have lots of financial ability to travel.
- The $530k in taxes can be cut significantly with proper planning.
- A good part of the tax savings can go towards charitable causes like the Alzheimer’s Society with the right strategy.
- They can even afford to retire earlier, and potentially spend more time volunteering.
Joe & Susan contributed $5,000 a year to charity, but after learning how efficient we could structure their situation, they felt they could afford to give more, and wanted to.
We showed how they could substantially increase donations without it costing them much more than they had been contributing. The Alzheimer’s Society would however benefit significantly more with the new strategy.
- 1. We set up a joint insurance policy that will pay out when they both pass away.
- 2. Fund the policy with $11,000/year for 20 years. After 20 years, the policy will be fully paid for.
- 3. Their favourite charity will be the beneficiary of the policy.
- 4. Because of the way it is structured, Joe and Susan will receive a full donation tax credit every year. In their case, every year they get $4,400 back, so their net cost is just under $6,600 a year.
- 5. The charity will receive a $1 million benefit!
- 6. Essentially, Joe and Susan put $6,600/year in for 20 years, a total of $132,000, and the total benefit to their favourite charity will be $1 million.
- 7. If Joe and Susan live to full life expectancy, the AFTER TAX rate of return on this charitable investment will be over 10%, guaranteed. There is not likely a better investment return available – especially given the low level of risk.
Joe and Susan can still give roughly $9,000 a year to charity – either through cash or stock – and help make a more immediate impact.
You don’t need to donate $11,000 for this to work for you. The strategy is scalable and can be structured to match your particular situation.
To get a quick sense of your financial picture and what you can afford to give, use our free online calculator.
Written by Brad Mol, Senior Financial Planer