As the richest generation in Canadian history becomes wealthier, people are expressing their generosity through contributions to charities and philanthropic organizations in record numbers. In the past, most people struggled to keep up with the basic expenses of raising and educating their families and did not have the luxury of contemplating significant charitable contributions. Today, many families can designate a portion of their wealth to bettering the world.
Changes in tax regulations and innovative new giving platforms have also made charitable giving more attainable for a larger percentage of people. Increasingly, as these people seek the ideal way to create their legacies, they struggle to determine what they want their money to accomplish and what form their gifts should take. The process of deciding on what causes to support and how to support them can be a powerful life-affirming experience under the guidance of an experienced advisor.
Another major shift has taken place in the world of charitable giving. Traditionally, people who gave to charity most often did so at the time of their death. Today, the majority of giving takes place while the donors are still alive, allowing people to witness the results of their gifts.
The difference between what we do and what we are capable of doing would suffice to solve most of the world's problems.- Gandhi
Making your mark
Begin by asking yourself questions like, "What do I want my money to accomplish?" and, "What do I want my life to have been about?" Supporting a charity in a focused and strategic way gives our lives lasting purpose, enabling us to thank and pay tribute to institutions or people who have been important in our lives, inspiring our children and our peers, supporting important causes, and connecting us with the world at large.
Make sure you have an Investment Advisor who focuses on philanthropy to help you identify one or two causes you value most, educate you about the various modes of giving, help you choose the best option for your circumstances, and work proactively to maximize the impact of your dollars.
Guidance and planning
Most Canadians underestimate their wealth and can donate far more to charity than they ever thought possible. However, it is wise to make planned gifts within the context of a complete financial or estate plan. You need a trusted professional advisor to ensure your best interests are being served at all times and to scrutinize your gift proposals to determine if they are financially appropriate for you. This advisor should accept the responsibility of ensuring you receive full disclosure and understand all the facts and rules regarding your gifts. For example, you may not be aware that a gift annuity is irrevocable, or that insurance premiums may increase over time.
The benefits of donating securities
In the spring of 2006, the federal government eliminated the capital gains tax on donated securities. This provides a significant financial incentive to donate appreciated securities directly to your favourite charity or philanthropic organization. Gifts of securities tend to be larger donations and are often part of a philanthropic strategy or legacy. Here's how it works:
When you donate stock, you receive a charitable tax receipt:
- The value of your donation is based on the stock's closing price the day it is received by the charity.
- A percentage of the donation becomes a non-refundable tax credit, which lowers your taxes that year.
- Charitable tax credits can also be used in the future. If you wish, you can spread out your tax savings over five years.
- You pay no capital gains tax on the appreciation of the stocks; capital gains taxes are no longer charged on shares donated to registered charities.
This example illustrates how you can save thousands of dollars in taxes by donating shares directly to a charity, giving your charity and yourself a considerable advantage.
| ||If you sell shares & donate proceeds||If you donate shares directly to charity|
|Number of Shares||250||250|
|Capital gains taxes* ||$2,732||$0.00|
|Donation to charity||$16,018||$18,750|
|***Highest marginal tax rate for a B.C. resident|
The information provided above is for illustrative purposes only. Please consult your financial or legal advisor for tax-effective giving that is right for you.
All donations over $200 receive a tax credit at the highest marginal tax rate.
Annual donations cannot exceed 75 per cent of your net income.
Excess gifts can be carried forward five years.
You get the maximum tax credit of 100 per cent of net income in year of death.
Excess gifts can be carried back to the year prior to your death.
Which modes of giving best suit your needs?
Donor Advised Funds (DAFs)
Donor Advised Funds are a cost-effective alternative to creating a private foundation. They are ideal for people who want to be actively involved, or strategic, in their philanthropy. DAFs allow you to enjoy all the benefits of forming a private foundation while leaving the administration and investment management duties to the charity or institution. Donor advised funds can involve a person, a couple, a family or a corporation. Often, a family will use a DAF to decide together, on an annual basis, which charities they will donate to each year. DAFs are typically funded with periodic lump sum contributions.
These are essential to any charity as they ensure a predictable income stream and the long-term success of the organization. An endowment fund is like a receptacle for gifts given in perpetuity. The capital remains untouched, while the income generated is used to finance ongoing programs and services. Endowments are an ideal gift to keep donors' visions alive long after they have passed away, and pay lasting tribute to their passions or beliefs. They are often the best vehicle to satisfy certain donors' strategic philanthropic objectives, as naming privileges often recognize the donor or family associated with the endowment.
A gift of insurance provides donors with an opportunity to make a large gift to a charity while enjoying tax savings today and in the future. For example, you could pay a low monthly premium and designate your charity as the owner and beneficiary, claiming the cost of the premiums as a tax deduction. Insurance offers an affordable way to give a significant and lasting gift for a fraction of its ultimate value. You can donate through an existing life insurance policy or create a new policy for giving. Note there are many details to consider before putting this option into place.
Which modes of giving best suit your needs?
Testamentary trusts and bequests
These are included in the donor's will and are dealt with upon death. A commitment is made now, but the donor retains the funds through his or her lifetime. At the time of death, the donor's estate distributes the funds to the designated charity. Donors can make restricted bequests that specify what can be done with their money, or unrestricted bequests that can be used for any purpose. Your Investment Advisor can help you establish a trust or bequest with the guidance of a lawyer.
The gift annuity or charitable gift annuity is a planned gift that benefits both the donor and the charity. The charity receives a minimum of 20 per cent of the annuity capital, while the donor receives lifelong tax benefits. A contract is established between the charity and the donor in which the donor agrees to give an irrevocable gift. In exchange, the charity agrees to pay a lifetime annuity to the donor or surviving beneficiary.
Gifts of residual interest
If you possess property you would like to deed to charity, you can make a gift of residual interest. You make an irrevocable gift of the property but retain your right to use it for the rest of your life or for a certain term. For example, you could donate a residual interest in a principal residence and continue living there, or give a residual interest in a painting but continue to display it over a lifetime. When you make a residual interest gift, you are entitled to a gift receipt that reduces your taxable income.
This material is for general information only and is not to be construed as an offer or solicitation for the sale or purchase of securities mentioned herein.
NOVEMBER 2010 SENIOR LIVING MAGAZINE VANCOUVER ISLAND
NOVEMBER 2010 SENIOR LIVING MAGAZINE VANCOUVER & LOWER MAINLAND
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