Naming Charitable Beneficiaries

Naming the estate as the beneficiary

In naming your estate as beneficiary on a policy based on your life and naming the charity as beneficiary in your will, you can retain control of the policy and change the beneficiary (i.e. To a family member) if need be.

By naming your estate as the beneficiary of the policy, you will not see any immediate tax relief and the premiums are not considered a taxable donation. However, your estate will be able claim a credit for the bequest made in your will, up to the 100% net income limitation discussed earlier. Because the proceeds of the policy are paid to your estate, they may be subject to probate fees.

Naming the Charity as Beneficiary

You may also elect to maintain ownership of a policy with the charity named as the beneficiary. By maintaining ownership of the policy, you may decide to change the beneficiary designation at a later date (making the charity a revocable beneficiary.) However, because the designation in this situation is revocable, you will not obtain a tax receipt for payment of the premiums and thus cannot claim a tax credit for those premiums.

In the past, if you named a charity as the direct beneficiary of his or her life insurance policy, instead of funnelling the proceeds through his or her estate and on to the charity in the form of a bequest, neither you nor your estate would receive a donation receipt for proceeds paid to the charity upon death. However, the Federal Budget of February 28, 2000 extended the charitable donations tax credit to certain donations of RRSP, RRIF, and life insurance proceeds that are made as a consequence of direct beneficiary designations. This new measure applies in respect of deaths that occur after 1998.

If all of these conditions are met, the transfer of life insurance proceeds to a charity upon death of the taxpayer as a result of a direct beneficiary designation is deemed to be a gift made by the taxpayer immediately prior to his or her death.