Maximize Your Charitable Impact
ZLC Financial offers personal, flexible legacy planning advice so your wishes live on into the future.
Canadians are encouraged to donate in various ways—some of which are lesser known. Most familiar are cash gifts, which offer a tax credit of up to 53.5% in British Columbia, ultimately reducing the cost of giving to 46.5%. Property donors receive a donation receipt for the fair market value of the donated property. Any accrued gains at the time of donation are usually subject to tax. A special exemption applies to donating publicly traded securities, which allows donors to avoid tax on accrued gains. Individuals can designate a charity as the beneficiary of a life insurance policy, entitling their estate to a donation receipt. Alternatively, donors can transfer a policy to a charity during their lifetime in exchange for a donation receipt equal to the policy’s fair market value. Ongoing premium payments also qualify for additional tax benefits. A highly efficient strategy not commonly on donors’ radars uses mining flow-through shares. Mining flow-through shares come equipped with many tax incentives that can considerably reduce the cost of giving. Business owners may wish to donate shares of their private companies, although charities might be reluctant to accept such shares, not knowing when they will be monetized. Acquiring corporate owned life insurance in tandem with the gift can provide assurance that proceeds to monetize the shares will come available. The financial return of a corporate owned insurance policy can also be very appealing. Donor advised funds are gaining popularity. Contributions, cash or otherwise, are made to a public foundation, which are then used to fund an investment account. Donors can make gifts from the investment account to chosen charities over time.
TAX LIMITATIONS
Consider tax rules that limit the financial impact of a gift. Donations claimed each year are generally limited to 75% of net income. Donations exceeding this amount may be claimed within the following five taxation years. Alternative Minimum Tax prevents high income earners from reducing their tax bill through deductions, credits and exemptions below a level that the government finds appropriate. AMT rules recently underwent an overhaul and deserve consideration. Budget 2024 increased the capital gains inclusion rate which may impact the cost of gifting certain property. Tax legislation limits the fair market value of a life insurance gift that is made either within the first three years of a policy’s purchase or within ten years of purchase, if the policy was acquired with the intention of making a gift. Non-qualifying Security rules apply to disallow a tax receipt on the gifting of private company shares to a private foundation until the time the foundation disposes of the shares, which must be within 60 months. Such donations are best structured on death where the donated shares are immediately redeemed with life insurance.
Another option, particularly for estates with more than $5 million in funds, is to set up a private foundation, which is separately registered with Canada Revenue Agency and the donor manages the charitable returns and annual financial statements on their own. “We recommend speaking to a financial advisor before making any big decisions to understand the benefits of leaving a legacy gift, as well as the various ways to leave a legacy gift,”leland says.“there are several options that can benefit both you and the organization you’re giving to.”
THE TAX ADVANTAGE
Legacy gifts are eligible for a tax-receipt for 100% of the gift value, with some types of gifts providing tax benefits now, and some to the estate. This is an important consideration when deciding whether to provide a legacy during your lifetime or in your estate, after you pass. Both have advantages. “If there is a large estate tax exposure, many donors prefer to contribute in their wills to offset the tax,”zlotnik says.“other donors want the charity of choice to benefit now and may use structured flow through shares to lower the cost of the gift dramatically.” Many donors prefer to payout to their favorite charities a series of payments rather than a lump sum.
“Legacy
gifts are vital to the tremendous advancements we have seen over the years in kidney care. Legacy gifts will be key to even more discoveries in the years to come. We have the power to relieve the burden of kidney disease, but it’s only possible with donors’ HOSAK,” help. –RAMYA director of philanthropy, Kidney Foundation, BC & Yukon Branch.
“The advantage of this for some donors is that they may wish to support a particular program a charity is offering and that lasts for a number of years,” Zlotnik says.“there could also be a concern about the current direction or management of a charity, and the donor may not want a single, one-time infusion of funds for fear of those funds being mismanaged.” Additional giving options that involve more complex planning include the use of alter-ego trusts, family trusts, estate freezes, employee stock options, private company shares, the gift of real estate (a cabin property or residential home) and the use of the capital dividend account. “These options provide the opportunity for a reduction in taxes, security of income and capital in lifetime, ability to transition wealth and decision-making in a cohesive manner, and provide meaningful charitable legacies to beloved charities,” Beard says. “Lastly, and without price, they may help maintain peace within one’s family.”
CONSULT A PROFESSIONAL
To facilitate this process, consult with an experienced financial planner and an estate lawyer.“the thought of drafting a will and your passing can be emotional and stressful,”lin says.“consulting with a professional gives you the clarity and support you need to make an informed choice.”
“Without
a will, a donor’s assets will be distributed according to law and that may not be what they want. And if that will is decades old or family situations have changed, it should
updated.” be –HILARY BEARD, director, gift & estate planning, BC Children’s Hospital Foundation
Zlotnik recommends including adult children in legacy planning discussions with professionals, particularly in complex estates with high-net-worth individuals. “It can be useful if the parent is willing to share what their objectives are,” he says. “Some parents have the attitude that it is their money, and they can do whatever they like with it, while others have a generationto-generation legacy attitude and want to include their children at the right time.”
CHECK IN WITH THE CHARITY
Once donors have a plan in place, it is important to discuss it with the charity, even if the exact terms of the gift are not yet decided. “Not only will the charity want to thank you, but this is an important step to ensure that they can actually carry out your wishes,”hikida says.“there can often be confusion about what exactly a charity does or how to name it in your will, but the charity often has suggested wording to review with a lawyer.” Consulting with the charity early ensures they understand how the gift should be used and gives the charity the opportunity to keep the donor informed of how they continue to help. “This also allows you to be prepared and to maximize the impact of your legacy through tax savings, but it also ensures that the charity of your choice has the support it needs to continue its good work, without delay,” Lin says.
GET SUPPORT
Charities often have dedicated legacy giving support teams, a network of trusted and experienced estate lawyers, financial planners and other professionals, and some even have partnerships with agencies that can help donors set up their wills. “We provide sample wording to include in your will to name the residue of your will, name a specific amount or piece of property and include the power to vary, if you intend to direct your gift for a specific project or for a specific use,”hosak says.“this ensures your gift is carried out exactly as you intended.” Once a professional has signed off on the paperwork, it is important to store the documents carefully. “A will should be stored in a secure location and a copy shared with the executor and/or registered with the BC government’s Will Registry to ensure the executor knows where to find the document,”beard says.“ensure the secure location of your original copy is known to your executor.” Reach out to the charity of your choice to start building the future and your legacy today.
LEARN MORE
BC Children’s Hospital Foundation |
bcchf.ca/legacy
Easter Seals Bc/yukon |
eastersealsbcy.ca
Family Services of Greater Vancouver |
fsgv.ca
Kidney Foundation of Canada, BC &
Yukon Branch | kidney.ca
The Salvation Army | salvationarmy.ca
Vancouver Foundation |
vancouverfoundation.ca
ZLC Financial | zlc.net