Focus on Finance: Grandkids – Charity or taxes?

by Michael Paull

(EJNews) – I have been in the life insurance business for 30 years now and my clientele has grown older with me. When I first sold life insurance policies, it was to young married couples who were just starting a family, just like myself. And back then I promoted and sold “Term” life insurance. The idea behind it was to buy as much as you could for the lowest cost possible. And like everyone else at the time, we knew that we would be wealthy enough when we were older and would have no need for insurance.

So here we are in 2016 and my philosophy is still the same, and fortunately, it did work out for many of my friends and clients as they did become wealthy but now they have tax problems with their RRIF’s or their income property, or with other investments. Now that their children are out of the house, we forgot that being a grandparent means that we enjoy our grandkids so much more than our own children and that university costs are $7,000 a year and not $700 like when we went to university. And now knowing how well we did and how thankful we are, we are starting to think of leaving a legacy for the people who are not as fortunate by giving to a charity or by setting up a family foundation so that your gift will last a life time.

All three of your goals can be accomplished with a concept called an “Estate Bond.”  It is easy to set up and the money goes directly to who you want it to go to, bypassing probate or legal fees. How it works is you decide the amount that you need to pay your taxes, or help the grandkids with university or leave to the charity. We then find the right way to fund it, and begin depositing monthly amounts. The key is that your total deposit will always be less than the amount that you will eventually have to fund any of your goals.

At some point I have to get to the real numbers so the example I want to use, is a couple who are 65 years young. They decide they want to leave $500,000 to their favorite charity. The amount that they have to deposit each month to the estate bond is $760 per month. Once they make the first premium deposit the account has been set up immediately for $500,000.  If they decided that they wanted to deposit the $760 a month into a Guaranteed Savings account and at current rates, it would take 38 years before they would have the $500,000 to give to charity. That would put them at 103 years old. Not only have they created the charitable gift immediately but they also can deduct the full amount for tax purposes.

To look into this possibility, give me a call at 780-425-5635.

Michael Paull is president of MICOL Consultants Inc. specializing in insurance and retirement savings and planning. He can be reached at michael@micol.ca.