6 June 2003 External T.I. 2003-0004315 - GIFT OF LIFE INSURANCE POLICIES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Whether a portion of the death benefit under a life insurance policy paid to a qualified donee as a beneficiary under the policy would qualify as a charitable gift.

2. Can the CCRA provide general guidelines in determining whether a shared ownership arrangement between a policyholder and a charity would result in a charitable gift?

Position:

1. Yes, if all the requirements set out in subsection 118.1(5.1) are met.

2. Not at this time since we have not had the opportunity to review specific shared ownership arrangements.

Reasons:

1. Subsections 118.1(5.1) and (5.2).

2. Such a determination can only be made on a case-by-case basis.

CALU - Conference for Advanced Life Underwriting (2003)

Question 8

Charitable donations of life insurance policies

There are many ways in which life insurance can be used as an effective instrument for the benefit of registered charities. However, in the past, arrangements have generally been restricted to the situations described in IT-244R3 where the ownership of a policy is absolutely assigned to a qualified donee and the donee is designated as the registered beneficiary of the policy. For a donation of an interest in a life insurance policy to qualify as a gift under common law, no right, privilege, benefit or advantage can accrue to the donor as a result of the gift.

A policyholder may wish to provide a portion of the benefits under a life insurance policy to a charity other than by means of an outright transfer of the policy to the charity. Such arrangements might include an irrevocable designation of the charity as a beneficiary for a portion of the death benefits payable under the policy. Other arrangements might involve "split-dollar" or other shared ownership arrangements where the policyholder and the charity enter into an agreement pursuant to which the rights and obligations under the policy are divided and shared between the parties.

Will the Agency provide general guidelines to assist policyholders and charities in determining whether an arrangement under which the life insurance benefits are shared between the charity and the donor will qualify as a charitable gift and how the value of the gift should be determined?

Agency's Response

In a situation where a policyholder makes a revocable or irrevocable designation of a qualified donee as the beneficiary of a life insurance policy for all or a portion of the death benefits payable under the policy, it is our view that the premiums paid by the policyholder on the policy will not qualify as a charitable gift since the policyholder has not donated an interest in the life insurance policy. However, subsection 118.1(5.2) will apply to deem the amount of the death benefit transferred to a qualified donee as a consequence of an individual's death to be a charitable gift for purposes of section 118.1 if all the requirements set out in subsection 118.1(5.1) are met. One such requirement is that immediately before the individual's death, the qualified donee was neither a policyholder under the policy nor an assignee of the individual's interest under the policy. Another requirement is that, immediately before the individual's death, the individual's consent would have been required to change the recipient of the death benefit. Accordingly, where there is an irrevocable designation of the qualified donee as the beneficiary of the policy, subsection 118.1(5.2) will not apply such that the death benefit received by the donee will not be deemed to be a charitable gift for section 118.1 purposes.

With regard to "split-dollar" or other shared ownership arrangements, it is possible that there may be arrangements that could result in a charitable gift for purposes of section 118.1 but such a determination can only be made on a case-by-case basis and we would need to review the particulars of a specific arrangement including all the relevant agreements and the life insurance policy. Since we have not had the opportunity to review specific shared ownership arrangements between donors and charities, it would be premature for us to attempt to provide general guidelines at this time or to comment on the impact, if any, of the draft gifting legislation released by the Department of Finance on December 20, 2002 on such arrangements. Possibly, following the review of a number of shared ownership arrangements, we may be in a position to provide some general comments on whether a portion of the premiums paid on the policy would qualify as a charitable gift for tax purposes. However, such gifting arrangements would appear to fit within the spirit of the proposed legislation on split receipting.