When Joan came to us, she was turning 55 and about to retire. An active volunteer in her community, she was looking forward to retiring and spending more time making an impact. 

Joan’s biggest concern was understanding if she had enough money to live on, and she was hoping we could help her find a clever way to better support her beloved charities and minimize the impact of tax.

We worked with her other professionals, and realized that Joan would be in a very low tax bracket between the age of 55 and 65, and be in an extremely high tax situation after 72 when she had to draw down on her RRIFs. To make things even worse, the majority of her estate would be subject to Ontario’s highest marginal tax rate of 53.5%

We worked to optimize Joan’s charitable giving and came up with a solution that allowed Joan to take out $12,000/year from her RSP for the next 10 years and give those funds to charity. Half the funds paid for a life insurance policy owned by the charity that would pay out at her passing and the other half went to immediate cash gifts. Since her charitable tax credit was double the rate of her personal tax rate, she could then take out another $12,000/year and divide it between her and her husband’s tax-free savings accounts (TFSAs) without paying further tax.

The net result is that ten years later, Joan’s estate was only $1350 smaller than it would have been if she had made no gifts at all. In the meantime, the combined impact of her insurance policy and her gifts to the charity was $260,000. Finally, her mandatory withdrawals in life on withdrawing from her registered retirement investment funds (RRIFs) and RRSPs was significantly reduced, as well as tax owing on her and her husband’s final estate.