Assignment #1 CHARITABLE DONATIONS THROUGH LIFE INSURANCE POLICIES

David and Amanda have been married for 25 years. They have two kids who are both independent and out of the house. Three years ago, the couple sold their business Retail Inc. to a multinational company. They feel they have more than they require in term of assets and cash flow and have been giving consideration to making donations to their favorite charity; an organization called Paws and Claws that finds homes for dogs and exotic parrots.

They were doing some research and came across an article in the Globe & Mail that shed some light on ways how charitable bequests can be made through insurance policies. The couple always had a risk management plan in place but after the sale of the business they are considering using their life insurance policies to plan a charitable gift. They are somewhat confused however as there are different implications to making such bequests and would like to speak to you in order to get some additional information. Below is a list of the insurance policies that the couple own:

Policy Owner	Policy Type	Face Value	CSV ($)	Life Insured	Beneficiary	Annual Premium
David	5-year term	350,000	NA	Amanda	Son	1,500
David	Universal Life	450,000	88,500	David	Son	2,900
Amanda	10-year term	500,000	NA	Amanda	Estate	1,200
Amanda	Whole Life	175,000	42,000	Amanda	Daughter	1,800
Amanda	Universal Life	200,000	35,500	David	Estelle (Friend)	2,200

Amandas Whole Life Insurance has an outstanding policy loan totaling $15,000, which she intends to pay back, but she just has not had the time. The couple has come to you to discuss how these donations can become part of their Estate Plan.

Today is January 1^st.

1. If Amanda and David wanted to transfer the ownership of all 5 policies to Paws and Claws today through an absolute assignment, calculate the total amount of their donation receipt they would be eligible to receive.

(2 marks)

2. If David and Amanda decided to complete an absolute assignment of both their term policies and Amandas universal life policy but continue to pay the premiums indefinitely, calculate their eligible donation amount for the year. (2 marks)

3. If David decides to name Paws & Claws as the beneficiary of his term policy and removes his son as beneficiary, calculate the donation amount in the year of Davids death (ignore premiums). (1 marks)

4. What is the best course of action David can take to ensure that he becomes eligible for the donation in the year of death of the life insured (Amanda) on his term life policy? (1 marks)

5. David and Amanda decide to complete an absolute assignment as eluded to in question #1, the couple have incomes of $200,000 and $90,000 respectively. Which of the following statements are pertinent to their circumstances? (2 marks)

6.Based on your answer in question #2, calculate the donation tax credit assuming the couple claims the donations individually - income threshold for the year is $202,800. (2 marks)