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How to make a bigger donation for less money Add to ...

Have you ever dreamed of what it would be like to be one of those people who can make a major gift to charity? Your name on the building ... the words of praise ...

Well you may not be at the Seymour Schulich level of giving, but there may just be a way for you to make a major contribution without it costing you a significant amount of money today. In fact, you may already be donating a few thousand dollars a year - which could be partially put toward "the big give."

Here is how it's done:

To get some sense of how much you can afford to give to charity each year, use this donation planner. Let's say you are 50, married to a 50-year-old, and in decent health. You are thinking of donating $1,000 a year to charity.

With this amount, you can likely make a gift of $162,000 to your charity, with an annual after-tax cost of around $550. The effective rate of return on this "investment" is 10 per cent if it paid out in 35 years.

The $162,000 gift comes from a life insurance contract, with the charity as the beneficiary and owner of the policy. This is scalable. You could do $10,000 a year, and leave almost $2-million to the charity. (There are some economies of scale that make the payout higher the larger the policy.)

The only drawback for the charity is that the funds will not likely be coming to them for many years.

To make this happen, you would want to work with an insurance broker who has expertise in estate planning, charitable giving and who has access to most insurance companies in order to find the best fit for the particular goal.

Make it a gift to a parent and benefit a charity sooner

Another approach to this strategy that can work is for the 50 year olds to do the same strategy, with the same charity as the beneficiary, but the life insurance would be on one of their parents. If one of their mothers was 72 years old and in decent health, the charity would most likely benefit much sooner. This can also be a gift to a parent who feels close to their house of worship or particular charity.

If you have a parent who is anywhere up to 80 years old and in reasonable health for their age, this could be a viable option.

As an example, you could put $2,000 a year into a plan for your 72-year-old mother. After your annual charitable tax credit, this works out to roughly $1,100 a year. If your mother passed away in 15 years at age 87, the charity would receive $49,000. This actually works out to an investment return of 12.7 per cent annually when you factor in the charitable tax credit. You would have put in $16,500 after tax credits over 15 years, and the charity would receive $49,000. Your mother benefits too, knowing that your gift is going to be a big help to her favourite charity. Again, this is all scalable. If you were to put $5,000 in each year, the charity would receive well over $130,000.

I am not sure why more charities don't educate their donors about how easy it is to make such a difference, but in many cases, it may simply be that they aren't aware.

No reason for you not to be the person to lead the way, and inspire many others to follow a similar strategy.

Follow Ted Rechtshaffen on his blog at The Canadian Financial Planner and on Twitter @TriDelta1.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.

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