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planned giving & trust se r vices Using a Charitable Insured Annuity for Retirement Planning FRANK AND LOUISE WEREN’T BIG WAGE EARNERS , but they had been able to save diligently, and retirement seemed to be just around the corner for them. The previous five years had been especially good to them, as they had invested in mutual funds, and these had gone up because of the improving economy in Canada and the United States. Capital gains 1 inside of their RRSPs 2 would be a non- event until they started withdrawing the money, but capital gains outside of the RRSPs were going to generate a substantial tax bill at the time of sale. Frank and Louise wanted to deal with these capital gains sooner rather than later. They were looking to simplify their lives. As an investment advisor, I put on seminars on planned giving and estate planning at B.C. campmeeting, and Frank had come to my seminar the previous year. He and Louise had been thinking about some of the options presented at that discussion and decided to give me a call. We conducted a thorough financial plan to review their income needs as well as retirement and estate goals. They had one daughter, whom they wanted to help financially, and they loved the Lord and His church, so they wanted to give a large part of their assets to the church as well. It became apparent early on that several major benefits could be achieved by constructing a charitable insured annuity for a portion of their assets. Unlike the charitable “gift” annuity that is prevalent in church circles in the United States, a charitable “insured” annuity gives the holders a guaranteed income for life, and because of the life insurance portion, 100 percent of the principal invested goes to the church upon the holder’s death. On the other hand, with a charitable “gift” annuity, the amount left to the church upon death is unknown and may be small. Annuity payments are based on life expectancy table, and are a blend of principal and interest. The longer the holder lives, the less there will be left over for the church to receive. Frank and Louise decided to go with a charitable insured annuity for several reasons. First, the annuity would give them a higher-than-average, risk-free income while they were alive, much like an additional pension. Second, the capital gain from the sale of their mutual funds could be virtually eliminated by using a portion of the proceeds to buy an insurance policy that makes the Adventist Church the recipient of the insurance policy proceeds. The cost of the insurance is considered a charitable donation if the church or an affiliated organization is the irrevocable beneficiary. Finally, no probate fees 3 would be incurred on these assets. This can be a significant savings for some accounts. Frank and Louise had to qualify for the insurance, but their healthy lifestyles made this part easy. Insured annuities generally work best for healthy people between the ages of 65 and 80. The end result was a simpler portfolio that produces a higher risk-free income. Frank and Louise’s charitable wishes toward the church would be carried out in a more effective manner than if it had simply been included in their will. This was a timely decision for Frank and Louise, because the government is changing the effectiveness of these insured annuities by 2017. 4 No two people or families I deal with are exactly the same. We each have our own financial fingerprint, and there are creative financial solutions for all kinds of individuals, families, and their corporations and estates, just as there was for Frank and Louise. n Rick Wiegel is an investment advisor in Victoria, B.C. 1 Capital gains are the profit from the sale of an investment. Registered Retirement Savings Plan (RRSP). 3 Probate fees may be charged to an estate. These fees are charged when establishing the validity of the will. Fees vary from province to province. 4 Legislation changes through Bill C-43 will aﬀect certain Life Insurance and Annuity contracts. These changes will aﬀect new policies and annuities starting in 2017. 2 M O c tob e r 201 5 13