S12. Our charity received a donation of a life insurance policy. How should the receipt be issued?
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It depends on whether the life insurance policy was donated after or before death.More…
Donated after death. For receipting purposes, the proceeds bequeathed represent the fair market value of the gift. So, a receipt for the value of the proceeds of the insurance policy can be issued.
Donated before death. When the taxpayer assigns his or her life insurance policy to a registered charity and the registered charity becomes the beneficiary, this is a transfer of property. A donation receipt can be issued. The amount of the donation is equal to the cash surrender value of the policy at the time of transfer plus any accumulated dividends and interest assigned at that time. If the policy has no cash surrender value, it is not considered a gift and the transfer cannot be receipted for tax purposes.
If the policy is not fully paid, the premiums have to be paid by the donor directly to the insurance company or a gift of an amount of money is made to the registered charity to provide for the payment of the premiums.
The future payment of premiums can constitute a gift and receipts can be issued.
In an arrangement is where the charity pays the premiums out of a gift of money made by the donor, these payments constitute fundraising costs.
For more information, see Income Tax Interpretation Bulletin IT-244R3 Gifts by individuals of life insurance policies as charitable donations.