Kathryn Olson
June 21, 2024
Making your money go further: The benefits of planned giving
Whether you want to help your community, advance medical research, or protect the environment, giving back speaks to who you are and the values you hold.
But did you know that there are more strategic ways to support the causes that matter to you than by simply donating cash?
Here are three alternative ways to help you achieve your philanthropic goals:
In Kind Donations
If you want to give to a charity while also saving on your taxes, consider donating publicly traded securities. Under the current tax rules, the government encourages in-kind donations in a couple of ways:
- When you donate publicly traded securities, you can claim the donation tax credit for the value of the securities. For the first $200 of donations you claim each year, the federal donation credit is 15%. Each province also offers a donation tax credit. Once you have given at least $200 in donations in a year, more donations save more tax.
- If the publicly-traded securities, mutual funds, or segregated funds have appreciated in value since you purchased them, the tax on this gain is eliminated when you donate the securities directly to the charity, rather than selling them, triggering the capital gain tax, and then donating the proceeds.
But things are changing
The 2024 federal budget proposed several changes that could have tax consequences for high-income taxpayers who make large donations. Three notable changes are:
- 100% of capital gains will now be included in the Alternative Minimum Tax (AMT) base (up from 80%);
- 30% of capital gains on donations of qualifying securities will now be included in the AMT base (up from 0%);
- And 80% deduction for the donation tax credit (down from 100%).
How will these changes impact the way your donations are taxed?
If you plan on making a sizable charitable donation, the new rules may add some complexity to your situation; however, there are ways to minimize their impact. Talk to your advisor about how to give in a way that positively impacts the causes you care about as well as your tax situation.
Private Foundations
Thinking about starting your own private foundation? The administrative, tax, legal, and accounting requirements can be a huge headache. Luckily, there is a simple solution: Donor Advised Funds (DAFs).
A DAF essentially piggybacks on certain public foundations (i.e. those established by a financial institution) by allowing you to create a “mini-foundation” under their umbrella.
So how does it work?
You start by making a donation to your DAF. The minimum required donation varies, but you can donate cash, publicly listed securities, life insurance policies, and gifts from your estate.
A charitable tax receipt will be issued for the value of your gift.
The funds can grow inside the DAF tax-free. Each year you can recommend distributions to be made to registered charities of your choice.
The funds inside your DAF are professionally managed by your Investment Advisor.
And the best part? You don’t have to worry about any of the administrative details.
While foundations charge a fee for this service, it is typically a lot less than running it through your own private foundation. Most DAFs will allow you to name your fund and appoint a successor to continue your charitable legacy even after you are gone.
Life Insurance
A life insurance policy is a great option for those wishing to donate a large amount for a relatively small cost. With the right strategy, life insurance can help reduce taxes during your lifetime and after you are gone.
There are three main ways to use life insurance for your charitable giving strategy:
- Take out a new policy in the name of the charity: You will receive a tax receipt for the cash value of the policy as well as for any premiums you pay, and the charity will receive the insurance proceeds when you pass away.
- Transfer ownership of an existing policy to a charity: You will receive a charitable tax receipt for the cash value of the policy. If you owe annual premiums on the policy, you will still pay them, but you will also receive tax receipts for the payments.
- Name the charity as the beneficiary of an existing policy: This is a good option if you want to maintain ownership of the policy, but your family does not need the money for financial stability. The charity will receive the death benefit proceeds upon your death, and a tax receipt for the full amount will be issued to your estate.
It is important to review your giving options with your advisor to ensure you can make a difference in a way that best suits your needs and financial circumstances.