This is a story about a couple that wanted to make better use of their hard earned money by leaving a significant legacy to the Alzheimers Society. They came to us for advice on how to execute their charitable contribution strategy, so we devised a plan. Let’s call them Joe and Susan.
As the retirement phase approached, Joe and Susan had some concerns to consider. They traveled frequently and wanted to maintain their lifestyle in retirement without fear of running out of money. At the same time, they wanted to pay as little tax as possible and help advance Alzheimer’s research to rid the world of this cruel disease.
We told them:
- They have lots of financial flexibility to travel.
- They will not outlive their money, but would likely have a $2 million Estate and a lifetime tax bill of $530k.
- 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 already 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 already been contributing. The Alzheimer’s Society would benefit greatly from this decision.
What we did:
- We set up a joint insurance policy that will pay out when they both pass away.
- Fund the policy with $11,000/year for 20 years. After 20 years, the policy will be fully paid for and their favourite charity will be the beneficiary of the policy.
- Because of the structure, Joe and Susan will receive a full donation tax credit every year of $4,400, so their net cost is just under $6,600 a year.
- As a result, the charity will receive a $1 million benefit!
- 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.
- 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 possibilities and what you can afford to give, use our free online calculator. Be sure to connect with us on Facebook or Twitter. This article was written by Brad Mol, Senior Financial Planner