Planned Giving

With government spending on social services continuing to decline, there is increased pressure for donations from private individuals. In 2010, total contributions by individuals in Canada stood at $10.6 billion which was about the same as 2007. With the government (and corporate) funding levels declining, our society needs to increase our donation levels to fill in the gaps.

People make charitable donations for many reasons. The main ones are a strong belief in the organization or cause, a strong value for social responsibility and of course, to pay less tax. Practically speaking, you can give to a charity at one of two times – while you are living or after you pass away.

If you elect to give to a charity when you pass on, there are some important issues to consider. Here are some of the different ways to structure your planned giving:

Cash – Specifying a set amount in your will to be gifted is pretty straightforward. However, it’s important to note that if you set out a specific amount and then leave the remainder to your children, they may be left with far less (or nothing) if your estate is smaller than you’ve expected.

Source – You can designate the money remaining in a bank account or the proceeds from the sale of your car. You may also elect to put a limit on this amount – the balance of your bank account but not to exceed $15,000.

Percentage of Estate – Although regularly used, this approach is definitely not recommended for most individuals. Proper tax planning is very difficult as you don’t know what this amount will be. Designating a percentage also means that the recipient is entitled to a full accounting of your estate and is given access to far more information than most people feel comfortable with.

Investment Shares – Although not widely enough known, you can elect to donate shares of a mutual fund, segregated fund or stock directly to a charity. By doing so, your estate will not have to pay any capital gains tax on the growth of these investments and you will get the full tax deduction. This translates into less income tax for you and more money for the charity!

Life Insurance – Utilizing life insurance policies for planned giving is an excellent way to multiply your generous gift considerably. Through advanced estate planning, you can eliminate substantial taxes that are due and provide extra funds to both a charity of your choice and your family or loved ones. Some strategies have the charity named as the beneficiary of the policy while others prepare for the transfer of the policy’s ownership to the charity while you’re still alive. The first scenario allows you to maintain additional control over the policy while you’re alive but the latter allows for earlier utilization of the tax credits. Everyone’s situation is different and these strategies must be considered carefully.

Although many people would like to give more money to their favourite charities while they’re still alive, the reality of bills and other living expenses often makes it very hard to do so. Planned giving through your estate is a great alternative to give back to your community and leave a lasting legacy behind.