ASSIGNMENT #1 (CASE QUIZ #1) CHARITABLE DONATIONS THROUGH LIFE INSURANCE POLICIES Randall and Beth have been married for 22 years. They have three children who are all independent and out of the house. Last year, the couple sold their business Chapstick 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 Randall 15-year term 150,000 NA Beth Son 1,250 Randall Whole Life 350,000 33,150 Randall Son 3,100 Beth 5-year term 300,000 NA Beth Estate 1,700 Beth Whole Life 225,000 26,000 Beth Daughter 2,500 Beth Universal Life 550,000 72,500 Randall Genevieve (Friend) 5,200 Beth's 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 1st. FINANCIAL PLANNING PROCESS AND ESTATE PLANNING 2 School of Business 2024, Southern Alberta Institute of Technology 1. If Randall and Beth 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 (ignore premiums). (2 marks) 2. If Randall and Beth decided to complete a total absolute assignment of both whole life policies and Beth's term policy as well as agreeing to pay any applicable premiums indefinitely on all three policies, calculate their eligible donation amount for the year. (2 marks) 1. FINANCIAL PLANNING PROCESS AND ESTATE PLANNING 3 School of Business 2024, Southern Alberta Institute of Technology 3. If Beth decides to name Paws & Claws as the beneficiary of her UL policy and removes Genevieve as beneficiary, calculate the donation amount in the year of Beth's death (ignore premiums). The death benefit chosen at the time the policy was formed was the face plus account value option. (1 mark) 4. What is the best course of action Randall can undertake to ensure that he becomes eligible for the donation in the year of death on his term insurance policy? (1 marks) 2. FINANCIAL PLANNING PROCESS AND ESTATE PLANNING 4 School of Business 2024, Southern Alberta Institute of Technology 5. Randall and Beth decide to complete an absolute assignment as calculated in question #1. The charitable donation threshold for the year is $238,000. Both Randall and Beth have net incomes of $190,000 and $48,000 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 elects not to optimize their charitable donation tax credit. (Income threshold = $238,000) (2 marks)