Giving your best
When it comes to charitable giving, what is best for you?
Irene and Bill McLennan * grew their nursery business from the seeds of hard work and determination—and now, everything's comin' up roses. "It took a lot of years and too many hours to count but, finally, our personal and financial lives are just terrific," affirms Bill. "Irene and I have always been very community oriented people and now we are in a position to provide some very tangible support. But how do we best go about it?"
Good question—and depending on your personal financial situation and charitable giving preferences, there are several different methods to consider—some of which allow you to make a donation without surrendering control of your assets.
Cash donation
This is the simplest type of donation. But before dropping that cheque in the mail, you may wish to consider alternative giving strategies that can increase the benefits of the donation for you, your charity and your estate.
Gifts in kind
These are donations of property including artwork, securities and real estate. "Tax credits for 'gifts in kind' donations are determined by the fair market value of the gift at the time of the donation" says Dave Ablett, Tax Planning Specialist with Advanced Financial Planning Support at Investors Group. "However, you must also report any resulting capital gain or loss on the disposition of that property."
- Publicly listed securities. To get an added tax advantage, you may donate securities listed on specific stock exchanges, mutual funds and segregated funds instead of cash. Under a recent change to the Income Tax Act, the effective taxable capital gain from the disposal of the security will be zero instead of one-half.
Bequests of life insurance or registered plans
You can donate the proceeds upon death from a life insurance policy, RRSP, RRIF or TFSA by naming the charity as the beneficiary, or by naming the estate as the beneficiary and naming the charity in the will to receive the proceeds. "Such charitable gifts are treated as if they were made in the year of your death and are eligible in determining the charitable donation tax credit on your final tax return or the immediately preceding return," advises Ablett.
Charitable Remainder Trusts
You make a gift to a charity during your lifetime yet continue to receive the income generated by the investments. Through an irrevocable inter vivos trust (known as a Charitable Remainder Trust), the charity you name is established as the capital beneficiary. However, the capital is not accessible to the charity during your lifetime. All interest and dividends earned by the trust are paid to you as taxable income. You receive a charitable receipt equal to the present value of the capital which the charity is expected to receive at the time of your death. "The donation is removed from your estate and would not be subject to probate fees or claims by creditors," adds Ablett.
Life insurance
You donate a whole life or universal life insurance policy to a charity by transferring ownership of the policy to the charity. This can be a tax-effective way to give because, for tax purposes, the value of the donation will be the policy's cash surrender value, plus any accumulated dividends minus any policy loans outstanding. "In addition, when you donate a policy to charity and continue to pay the premiums rather than having the charity pay them, each payment is considered an additional charitable donation and entitles you to a tax credit," adds Ablett.
Gifts to a foundation
If you wish to provide a charity with regular income to fund activities or, perhaps, to provide scholarships to deserving students, you may choose to establish a private foundation. Your foundation is funded by a substantial gift made during your lifetime or at the time of death that qualifies for charitable receipts. A foundation is also an effective way to permanently associate your family name with charitable giving.
Donor-advised funds
Donations into a donor-advised fund can offer an easy and convenient way to manage your ongoing charitable giving and potentially leave a lasting legacy. The account established with your donation is a “donor-advised” account, which makes grants over a period of years to the charities that you choose. You receive an official donation receipt which can provide immediate tax benefits. And through your annual grant recommendations you can support your favorite charities now and in the future, without the administrative responsibilities and expenses of setting up your own private foundation.
When you are ready to embark on a program of charitable giving, remember —the methods you choose are important to you and to the charities you support. Your Investors Group Consultant can help structure charitable donations to best fit your needs.
* Fictitious
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Written and published by Investors Group as a general source of information only. It is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Readers should seek advice on their specific circumstances from an Investors Group Consultant.
© Copyright 2010, Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group.
