Wealth Strategies: Leveraging charitable donations

Milestone Wealth Management Ltd. - Oct 23, 2015
As one gains increased wealth in life, charitable donations are one way to give back to those less fortunate in one realm or another.  That being said, donations can also be strategized and structured in order to achieve a win-win from the estate....

Leveraging charitable donations: Thinking outside the box

As one gains increased wealth in life, charitable donations are one way to give back to those less fortunate in one realm or another.  That being said, donations can also be strategized and structured in order to achieve a win-win from the estate or tax perspective of the donor.  All that's required is some advance planning, to which many higher net worth individuals would attest.

The more common and well known methods of giving would include cash, cheque or credit card, which most of us have likely used for a one-time gift. Gifting publicly traded securities would be the next most common, and offers the advantage of avoiding the capital gains tax when the total value of the security is donated. One can also donate flow-through shares, whereby the donor receives the initial sizeable government tax credits that this type of investment offers. The flow-through share option is optimal for larger, one-time donations.  Gifting real estate or private shares is also an option, and even more beneficial for the former given recent tax law changes that allow one to donate a second property with a larger capital gain and avoid capital gain taxes.

Another common way of charitable giving would be to use one’s estate to direct a specific amount to a specific charity.  This option isn’t necessarily desirable from a tax perspective, given that the donation would be from after-tax monies, but it’s relatively simple to execute.  Purchasing an insurance policy* with a named charity as the beneficiary, however, can be highly effective from all angles, though some pre-planning is required fro this type of contribution. Donating in this way allows tax deductions for the contributor on the annual insurance premiums and the end result is a far larger amount to donate upon death given that insurance is funding the future lump sum.  Making use of an insurance policy* as a way to give is far more effective than merely investing monies, being taxed in the interim and later donating a lesser amount to the charity upon passing.

Lastly, RRSPs and RRIFs can also be donated, though this isn’t an overly common form of giving.  In order to gift the proceeds of these registered accounts, the charity is merely named as a beneficiary with the applicable financial institution in which the account(s) are held.  From the tax perspective of the individual, this avoids having the full value of these accounts included in the individual’s income in the year of passing and thereby reducing the amount taxable on the estate.

A good example of a widely known charity would be a hospital such as the Mount Sinai Hospital Foundation of Toronto.  The chief executive Kevin Goldthorp commented here on this subject for which they’ve identified common forms of donations and donor objectives as follows:

“The vast majority of gifts are in cheques, credit cards or securities transfers. We are not getting a significant amount outside of that area.” Goldthorp says, adding that he is seeing some changes, especially with larger donors. “Once you get over $25,000 or $50,000, many donors are doing much greater due diligence,” he says. “There is more discussion about the process of philanthropy. Questions are commonly around what is being funded, what the impact is to the hospital…are others benefiting from your research data”. “Some donors want their peers to join with them, to get involved, to be a part of their project or to start something new,” Goldthorp says. “They know that their gift can be meant as an example to others to do something similar”.

These are merely a few ideas to consider in charitable giving, but of course the main objective, overall, is to make a difference in the lives of others, and potentially inspire others to do the same.

 

* Offered through Canaccord Genuity Wealth & Estate Planning Services

Disclaimer:  The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant.