After achieving the financial independence of retirement, our ambitions often turn to the next stage of achievement: what we’ll leave behind.
A strategic financial planning approach can help ensure that the value of any gift is maximized for the benefit of both the donor and the recipient.
One example, says Susan Stefura, a certified financial planner and senior consultant with National Bank Financial, is donating “in kind.” Often when individuals decide to give a sizable gift, they sell a stock or another asset and give the cash from the sale. She explains, “When you do it that way, you have to pay tax on the gain (assuming the asset has appreciated in value). A better way of doing it is making an ‘in kind’ donation of the stock or asset itself.” This way, any capital gains are not taxable, which can mean significant tax savings for the donor.
Any charitable gift, whether made in cash or kind, also results in a generous tax credit, which is a direct offset to any taxes that are owed in a given year, she says. But the tax credit is also flexible. “An individual and his or her spouse can pool their donations and claim them on the higher income earner’s tax return,” she explains, adding that the credits can also be carried forward for up to five years to offset future tax liabilities.
Many Canadians choose to leave charitable gifts as part of their estates, but for those who have more flexibility in their financial affairs, a staged approach can be more rewarding, from both a tax-savings and emotional perspective.
“A lot of our clients want to make large charitable gifts at death. But, because donations are limited to 100 per cent of net income in the year of death, you could be leaving some of the tax credits on the table, since your tax liability for the year may not be high enough to fully benefit,” Ms. Stefura cautions.
In addition to maximizing tax benefits, approaching charitable and family giving as part of a comprehensive financial plan also assures that gifts don’t create income insecurity later on. “We always do a cash-flow projection for our clients that projects well into the future, to identify any potential shortfalls,” says Ms. Stefura. “It all has to be considered as part of the bigger picture.”
A more strategic approach can also maximize the emotional benefits of giving. Traditionally, many Canadians have simply made a gift as part of their estate, says Dr. Jon Dellandrea, president and CEO of the Sunnybrook Foundation. “The question we ask is, ‘How can we mostly deeply personalize this experience?’ We help them to get the joy of seeing how their money is going to be used while they are alive and engaged in the conversation, to give them a clear sense of where their money will make a measurable, positive effect.”
For example, a former cardiology patient of Sunnybrook approached the foundation recently to discuss how a significant gift he wished to make could best be used. The foundation invited the program chief of the hospital’s cardiology department to share the vision for health care in the field from the perspective of its clinicians, scientists and researchers.
The donor, in his early 90s, was then able to provide very specific directions, says Dr. Dellandrea. “He said, ‘This is where I want my money to go – I’m interested in having it clearly tied to this visionary research agenda for the future.’ He knows that this money that he’s worked hard for throughout his life now has the potential to touch the lives of, without exaggeration, literally thousands of people in the future.”