Charitable giving may be one of the weightiest financial decisions of your life. Not only is the gift is as meaningful to you and your family as it is to the charity and your community but the execution of your plan could maximize your tax benefits, as well as enhance the benefits to the charity, beyond each dollar gifted.
There is nothing as valuable as a short checklist of essential charitable gift giving strategies and tips:
- When making a charitable bequest written into your will (or an addendum called a codicil) you should contact the intended charity to ensure that you are using the correct legal name of the organization. Also, they will provide additional details that their charity needs to properly direct your gift and they usually have a host of estate planning ideas to better execute your gift.
- Search Canada Revenue Agency’s list of registered Canadian charities at http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html is a great place to begin the search for the charity that best fits your intentions and to ensure that any charities that you are considering are legitimate.
- Unless you have a strong reason for directing the use of your gift, keep in mind that the time horizon is often lengthy between writing your will and when the charity ultimately benefits from your gift. Most often, charities prefer to decide the best use of the funds, as their needs change over time.
- Tax implications: Individuals can claim up to 75% of their earned income in charitable tax credits while they are alive and may carry unused credits forward for up to 5 tax years. On your terminal tax return, your executor can claim up to 100% of your earned income in charitable tax credits and may apply unused credits against your previous year’s tax return. Depending on your income level in both scenarios, it may be more advantageous to make a gift while you are alive. In one strategy, when you give the ownership of a life insurance policy to a charity, the annual premiums that you pay on the policy are your charitable donation and the windfall upon your death is what the charity will ultimately receive. This also works well when you set up a personal foundation or endowment fund to leave a permanent family legacy of giving.
- Foundations and endowments gifts in perpetuity: Setting up a personal foundation or endowment is more accessible than ever. Several national or local organizations exist today to make the process efficient and accessible by managing the investments in your foundation as well as administering the rigorous reporting and distributions on your behalf. Fund contributions can be made all at once or over several years and providing you with a charitable tax receipt in the year your contribution is made. Subsequently, the foundation or endowment fund distributed a minimum of 3% or a larger quantity that you determine to your named beneficiary of the fund.
- Donating securities in-kind: In 2006, a tax incentive was introduced for those wishing to donate securities and other capital assets such as stocks, rights, mutual funds, bonds, real estate and securities. Instead of selling the securities and donating the proceeds, donating the securities in-kind eliminates the capital gains triggered at the donation date. When your cost base for the asset that you are donating is very low relative to the current market price, your tax savings could be dramatic. Additionally, you will receive a charitable donation for the total fair market value of your in-kind donation.
- From time to time, charities raise funds for capital projects, such as the building of a hospice or educational facility. You may wish to apply your gift to such projects and in doing so request a building or room be named after you, your family or a special person. These gifts can be made while you are alive or through a bequest in your will and can be made in cash, eligible securities or real estate.
- Life insurance can be used in a number of unique applications for charitable gift giving. A unique way to leave a larger gift than you may be able to otherwise afford is by naming a charity as the beneficiary of a life insurance policy. Furthermore, if you make the charity the owner of the policy as well as the beneficiary, you may deduct the premiums paid as a charitable tax credit while you are alive. Another strategic application is to combine an annuity and a life insurance policy. By setting up the correct quantities and giving the ownership to the charity, you can establish a monthly income stream for yourself for the rest of your life, along with annual charitable donation receipts to defray taxes.
It is never recommended that you use any of these strategies to represent your entire access to your savings and always contact a licensed professional to guide you in making sound financial decisions in the context of your unique circumstances.