In years past I've set land speed records doing all of my Christmas shopping for 15 people on Christmas Eve. This year, I decided to start my shopping early. My first stop was at a local bookstore where I asked the woman behind the counter where the self-help books were located.
"I can't tell you" she said. "That would defeat the purpose."
She wasn't much help, so I went to a department store and bought a pocket knife for a good friend (a guy can do many things with a pocket knife, including trimming his toenails). Although it looked like a pocket knife, turns out it wasn't. It was actually a new type of eyebrow tweezers. He won't appreciate that as much.
With the challenge of finding the right gifts, I've decided to take a different approach. I'm going to help those on my list give to charity. Let's face it, in recessionary times like these, it's worth a special effort to remember the needs of others by giving to your favourite registered charity. Here are a couple of ideas.
CHARITY GIFT CARDS
It's always possible to make a gift to a charity on behalf of someone else. The problem with this, however, is that you might not choose the cause or charity that the special person on your list wants to support. Enter: The charity gift card.
Here's how these work: You can visit canadahelps.org online and click on the charity gift card link. CanadaHelps is a registered charity itself that makes it possible to donate to any registered charity in Canada.
You can purchase a charity gift card, for any amount, using your credit card. You then specify who is to receive the gift card, and the card is then e-mailed to that recipient. The recipient is then able to go online and specify which registered charity in Canada should receive the dollar amount on the gift card.
That amount is then paid to the registered charity. As the giver, you will receive the donation receipt and can claim the tax credit (so the gift actually costs you about 54 cents for each dollar given if you're in the highest tax bracket; this varies by province).
LEGACY GIFT OF INSURANCE
This is a strategy that will allow you to make a substantial gift to charity for a fraction of the cost you'd normally expect. Consider an example.
The Smiths are a 65-year-old couple who are in good health and are in a comfortable financial position. They have a desire to make a substantial gift to charity, and want to do this in a manner that will ensure that their support will continue beyond their lifetime, although they would like some tax savings today.
Here's what they're going to do: First, they are going to purchase a joint last-to-die term-to-100 insurance policy so that $100,000 of insurance will pay out to the charity of their choice upon the second of them to die. Joint last-to-die insurance is a cheap way to buy insurance.
Let's assume the policy will have set annual premiums of $1,425, which would be payable until the second spouse passes away. Second, after purchasing the policy and paying one month's premium, the Smiths are going to donate the policy to their favourite charity.
This is an irrevocable gift that gives the charity ownership of the policy, which guarantees that the charity will be the beneficiary. Next, the Smiths are going to donate $23,500 to the charity.
The charity will use the $23,500 to buy a life annuity on their lives. This is done to guarantee an income stream of $1,425 annually to the charity, which will cover the life insurance premiums on the policy owned by the charity, regardless of how long the Smiths live.
The Smiths will receive a donation receipt for $23,500, which allows them a tax credit and tax savings of about $10,810 (assuming a 46-per-cent marginal tax rate). The after-tax cost of the donation for the Smiths is just $14,115 ($23,500 less $10,810 in tax savings, plus the first month premium of $1,425).
In the end, the charity has a fully funded, irrevocable future gift of $100,000, the Smiths are able to make a commitment to the charity today so that the charity can acknowledge the gift, they achieve some tax savings today, avoid probate fees on the insurance proceeds, and set up a planned gift with a one-time transaction to avoid the responsibility of future payments and administration. Thanks to Vern Dueck, certified financial planner in Burlington, Ont., for this idea.
