Integrating Charitable Giving into Your Financial and Estate Plan

This article appeared in the Fall 2009 Registered Nurses’ Foundation of Ontario Newsletter
Charitable giving is a growing priority for many Canadians. We see this in recent statistics showing a substantial increase in donations. This kind of support for charity is unprecedented in our history. While generosity and belief in community are primary motivators, the greatest enabler is a series of new tax incentives that began in 1996.

Introduction of Federal Tax Incentives
In introducing these charitable giving incentives, the Federal government has given taxpayers a choice. It’s a choice about how individuals wish to support society and the amount of tax they wish to pay. With these new tax incentives, it’s now possible to eliminate tax on 75% of income, except in the year of death and the year prior to death, when this figure jumps to 100%. Everyone must contribute to society via the tax system, but the decision about where the contribution goes can now be directed by the individual taxpayer.

What makes the tax incentives distinct is that they focus on gifts of assets (stocks, bonds, mutual funds, real estate, RRSPs/RRIFs) and business interests. These aren’t the gifts we typically make. Most are familiar with annual gifts by cheque to our favourite charities. The Federal tax incentives enable exceptional gifts that stand out for their size and level of commitment. These are gifts that are planned ahead of time and often realized through estate plans.

Meaningful Charitable Planning
A good financial and estate plan that includes charitable giving can be difficult to implement on its own and professional advice is recommended. Personal and family needs are at the centre of the planning process, and then charitable giving is considered. The goal is to integrate charitable giving into your financial and estate plan in a way that reflects both your values and your desire to minimize taxes.

At lower amounts, the individual’s will typically designates one or more charities to receive specific amounts or a percentage of the final estate value. At higher levels of gifting, an intermediary charitable entity – either a donor-advised fund, which is a charitable giving vehicle administered by a third party such as a mutual fund company and created to manage charitable donations on behalf of an organization, family, or individual, or a private family foundation – is set up to receive assets over a number of years. The intermediary “container” can be filled at your own pace, in increments or in one large instalment, often when a business is sold or at the time of death. This “container” represents a piece of your legacy, an ongoing entity in your family’s name.

Typically, these larger gifted assets are endowed, which means the capital is invested and only the income is gifted annually. Both advised funds and private foundations give ongoing control to the donors and their families to choose the charitable recipient annually. It’s a vehicle that allows donors and their families to be involved over time in enacting your legacy.

Example 1
Mary, a 70 year old retired nurse, is an example of someone who wants to donate to the RNFOO. She arranges to contribute $50,000 over five years to a donor-advised fund available from a mutual fund company. Working with her advisor, she invests the money conservatively to ensure that the principal remains intact and the annual income of about 3% to 5% is donated to the RNFOO each year into perpetuity.

Example 2
In another example, Joanna, a Registered Nurse, and her spouse John want to make significant contributions to several charities. On their passing, their son will inherit sufficient assets to enable his career and lifestyle while simultaneously keeping him motivated to continue working. Joanna and John want to impart their charitable values to their son, his children and grandchildren. To do so, they set up a private family foundation with an initial investment of $250,000. On their passing, they have designated their private foundation as the beneficiary of a $500,000 joint, last-to-die life insurance policy. With the investment strategy designed to preserve the capital, the annual income can be distributed to their charities of choice.

The approach to planning described above separates the process of planning the gift from the support of individual charities. You can plan to give a large amount to charity over a number of years as part of an integrated plan. The contributions happen on your timetable and not when fundraisers come calling. Gifts to individual charities occur as part of a controlled, thoughtful process that preserves maximum flexibility and allows ones’ philanthropic values to be implemented over time. If you would like to learn more about this planning opportunity, please contact the RNFOO office.

Bev is a Senior Investment Executive and Financial Planner with ScotiaMcLeod and highly respected in her industry. She is a Certified Investment Management Analyst and a Fellow of the Canadian Securities Institute. Bev has served as Gala Fundraising Chair, and from October 1998 to October 2004 she served on the Executive Team of RNFOO. At the Gala in May 2006, Beverley Moir was presented with an Honourary Life Membership in recognition of her leadership and commitment to the Registered Nurses Foundation of Ontario.

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