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Stories |
| Comparison of Gift Securities By DeWayne Osborne |
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 In
recent years, people have been donating millions of dollars
in stocks, mutual funds and other securities to charities right across
Canada. Why would you consider donating your securities? Because it helps
the charity and reduces the amount of tax you have to pay.
In 1997, the Federal Government provided an incentive for people to donate securities intact to charities. The incentive was to reduce the amount of any capital gain that resulted from the gift that the donor was required to include in his or her income. You see, when you donate anything, Canada Revenue Agency deems that you have disposed of the property at its fair market value. If the value when you donate it is higher than the cost of the property, you have a capital gain. Typically, the rules require that you report 50% of that gain as income in the year you make the gift. However, the incentive mentioned earlier applies to donations of stocks that are traded on public exchanges, mutual funds, segregated funds, and so on. Instead of reporting 50% of the capital gain, you only have to report 25% when you donate the security intact and not sell it first. Consider this simple example: Kathleen donates her stock portfolio with fair market value of $15,000. She paid $5,000 some time ago. Her capital gain is $10,000, and because her stocks were traded on a public exchange, she includes $2,500 (25% of $10,000) on her tax return as income. However, she also receives a $15,000 tax receipt for the gift, which produces $6,900 ($15,000 X 46% tax credit) in tax savings. The end result is the charity gets $15,000 to do its work, and she saves tax. Now, if that was not good enough, during the federal election, the conservative party promised to eliminate the taxable portion of the capital gain entirely on these types of gifts. So what would that mean to Kathleen? It means she would not have to report the $2,500 from the capital gain as income, thus savings her even more in taxes AND the charity still gets the $15,000 to do its work. A win-win for everyone! DeWayne Osborn CGA, CFP |
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| Giving and Receiving By Dennis Hunt, CFP, BA Specialist ‘83 |
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 Since
the 1996 budget, the federal government has introduced a number of significant
tax changes designed to encourage Canadians to make larger gifts in support
of charitable organizations. Charitable gifting, when combined with life
insurance, can be incorporated into an estate plan to achieve a variety
of complementary financial goals. The following case involves a charitable
widow:
Brenda is 70 years old and is recently widowed. She has two grown children who are married with their own children. Brenda wishes to make a sizable gift to a local charity that her late husband was actively involved with. However, she does not want to significantly reduce her current assets or those available to her family on death. She has also been advised that her death will trigger tax liabilities in the range of $100,000 from capital gains on mutual funds and from RRSPs. To meet Brenda’s objectives, it is recommended that she purchase a $100,000 permanent insurance policy with an annual premium of $2,500. She can then transfer ownership of the policy to the local charity. By virtue of the Canada Customs and Revenue Agency (CCRA) administrative position, Brenda can claim the premium payment as a charitable donation on an annual basis. This would reduce the after-tax cost of paying the premium on the policy and ensure the charity receives a large gift on her death. The downside of this approach is that Brenda no longer controls the policy and the underlying death benefit. Her only option is to discontinue paying premiums should she wish to withdraw her support for this charity in the future. Another option is to arrange for the gift of the life insurance to be deferred until Brenda’s death. She can provide through her will or directly through an insurance designation that the insurance proceeds be paid to the local charity on her death. Such a gift will be treated as a charitable donation in the year of death. The charity is designated as the beneficiary of the policy. This ensures the gift is received on a timely basis and avoids estate creditors and the payment of a variety of estate administration fees and taxes (i.e. probate). There are several benefits of a deferred gifting strategy using life insurance. First, Brenda continues to own the policy and can divert the death benefits to other sources unless the charity is the irrevocable beneficiary. Second, the gift can be used to offset up to 100 per cent of net income in the year of death. Excess donations in the year of death may be carried back, subject to the same 100 per cent limit, to the immediately preceding tax year. So in addition to funding a sizable gift to the charity, the life insurance, in effect, offsets approximately $100,000 of taxable income in Brenda’s estate this allows more of the estate assets to pass to her beneficiaries. To avoid probate fees or taxes, it is recommended to designate the charity as the policy’s beneficiary. In summary, this illustrates two common insurance strategies for planned giving. Feel free to contact me if you have any questions or require further information on the above. Dennis Hunt is an Executive Financial Consultant at Investors Group
Financial Services Inc. Please feel free to contact him to consider
the legacy options available to you. |
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| Take Control of Your
Legacy By Dennis Hunt, CFP, BA Specialist ‘83 |
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 With
proper planning, you can maximize the benefits of your legacy to your
heirs and your charity while keeping as much of your money as possible
out of the government’s hands. A comprehensively considered charitable
giving strategy ensures that your assets will be passed on as you want
them to be. Here are six charitable giving strategies to consider:1. Make a bequest by naming the charity as a beneficiary. The simplest charitable giving option is to leave a bequest in your Will to the recognized charity of your choice. Your bequest could be a sum money or a gift in kind, such as artwork, securities or real estate – and you can give the charity the freedom to use it as they see fit. 2. Donate a life insurance policy. When you donate a life insurance policy to your favourite charity, you ensure that the charity receives the precise sum you wish to donate – the death benefit under the policy. 3. Gifts of life insurance or registered plans, made at the time of your death. As tax laws stand now, you cannot claim any tax credits during your lifetime if you name a charity as the beneficiary of your life insurance (as opposed to donating the policy), or of your RRSP or RRIF. There are two ways, however, to ensure that the proceeds of your registered plan or life insurance will go to the charity of your choice and your estate will benefit from a tax credit. a. You can name your estate as the beneficiary of the plan and make a bequest to the charity in your will. b. You can name the charity directly as the beneficiary. 4. Charitable Remainder Trust. With a Charitable Remainder Trust, your legacy takes the form of assets such as cash, stocks, bonds, or securities that are placed into a trust. This type of trust makes the most sense for assets in excess of $25,000, which will generate sufficient investment income to cover the set-up and ongoing administration costs, and provide an income to you. The trust is irrevocable after it is set up. 5. Charitable Life Annuities. A Charitable Life Annuity allows you to make a charitable gift now and continue to receive a lifetime income from the assets you’ve donated, for yourself, or for you and your spouse. A large portion of this annuity income will be tax-free and it does not trigger any Old Age Security claw backs. 6. Gifts of Property. Your legacy could include the gifting of capital property such as securities (including mutual funds), land buildings, equipment, artwork, cultural property, ecologically sensitive lands and a life interests in a cottage. These legacy options provide unique tax advantages above and beyond the charitable donation receipt. Dennis Hunt is an Executive Financial Consultant at Investors Group
Financial Services Inc. Please feel free to contact him to consider
the legacy options available to you. |
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This information is intended to provide general guidelines and not to advise anyone on what he or she should do in a particular situation. As everyone's situation is different, we recommend that you consult with your professional advisor(s) before making any decisions pertaining to planned giving. |
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| Last updated February 20, 2009 |
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