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Tony Lee, director of leadership philanthropy at the Canadian Cancer Society's Ontario division. (Michelle Siu for The Globe and Mail/Michelle Siu for The Globe and Mail)
Tony Lee, director of leadership philanthropy at the Canadian Cancer Society's Ontario division. (Michelle Siu for The Globe and Mail/Michelle Siu for The Globe and Mail)

Wealth Management - Giving

Give it up for charity Add to ...

Besides the widely-known annual charitable giving campaigns, there are other ways for high-net-worth Canadians to support their favourite charities.

These alternatives have taken on more prominence as members of the baby boomer cohort turn their attention to estate planning and how best to achieve their personal philanthropic goals.

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One of the most common charitable giving methods for donors of all wealth levels is an outright gift to a charity named in a will. The gift could be a specific amount of money, a particular asset, such as real estate, or a fixed percentage of the estate.

More often, it takes the form of a residuary bequest, that is the named charity receives the assets remaining after the other terms in the will have been met. Some people choose to specify how their bequest will be used. For example, a rural land owner might donate land for a conservation area, or a grateful patient might leave money to buy an MRI machine for a hospital.

Direct donation of publicly listed securities, such as shares of publicly traded companies, bonds and mutual funds, is a gifting method frequently chosen by high-net-worth individuals. At the Canadian Cancer Society’s Ontario division, securities donations account for 54% of all major gifts ($10,000 or more).

The donor or their estate benefits from giving securities in two ways:

  • Any accrued capital gains are exempt from taxation.
  • The charity issues a donation tax credit for the value of the donation.

These benefits apply only to gifts to charitable organizations registered under Canada’s Income Tax Act. Questionable securities donation schemes appear regularly, so potential donors should confirm that the charity is a Canadian registered charity and conduct appropriate due diligence.

A major advantage of leaving an outright gift in a will is the fact that the gift can be revoked at any time by simply changing the will. It also allows for complete privacy.

Malcolm Burrows, head of Philanthropic Advisory Services at Scotia Private Client Group, reports that most individuals don’t alert the charities named in their will about the planned bequest.

Other less common ways of charitable giving may be the best choice for certain individuals, depending on their personal financial situation. These options include naming a charitable organization as the beneficiary of a life insurance policy; setting up an endowment fund that provides ongoing investment income to one or more charities; donating excess funds from RRSPs or RRIFs, or setting up a charitable gift annuity or a charitable insured annuity.

This last giving approach is of particular interest to affluent retirees of 60 to 80 years of age who would like to receive income for life and annual tax savings, and would like to leave a significant gift to charity in their estate. This method combines a prescribed annuity and term-to-100 insurance and can be structured in a number of ways, depending on whether tax savings are immediate or benefit the estate.

Anyone who is considering a major gift to charity should begin by deciding what they wish to accomplish with their philanthropy. They should then identify three or four charities working in the area of interest and confirm that these organizations are able to achieve the donor’s philanthropic goals.

When considering any planned charitable giving, obtaining financial advice before proceeding is a must. Advisers can answer such questions as: How much can I give and maintain my desired lifestyle? Should I donate now to minimize taxes, or later to offset estate taxation?

For many asset-rich Canadians, tax savings are an important factor in choosing the gifting method. According to Tony Lee, Director of Leadership Philanthropy for the Canadian Cancer Society, Ontario Division, “Large charitable gifts can have a low impact on an affluent individual’s total net worth due to Canada’s advantageous tax laws for charitable giving.”

For example, business owners who decide to sell their company often face a massive tax bill in the year of sale. Through smart planned giving, this tax hit can be offset substantially.

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