Steps to Leaving a Legacy - Planned Giving Options

In addition to the satisfaction that comes from contributing to the future of their favourite community organization or program, donors often receive significant tax and estate planning benefits.

There are a number of options available to you. The information provided here will give you a general sense of the different ways in which you can make a planned gift. Your professional advisors can help you to decide which option(s) would work best for you.

Cash is the simplest and most common form of gift. It can be put to immediate use by the charity and results in a charitable donation receipt for the donor. Gifts of cash – whether by cheque, money order, credit card or currency – are the most familiar way to contribute to a charity.

Here’s an example of how your tax credit might be calculated if you are a resident of Alberta:

Amount of your donation	$1,000	$100,000
Federal tax credit: On first $200 @ 16% On amount over $200 @ 29%	$32 $232	$32 $28,942
Total federal tax credit	$264	$28,974

Alberta provincial tax credit* 50% of federal credit	$132	$14,487

Total tax credit $396	$396	$43,461

Your donation is	$1,000	$100,000
Less tax credit	$396	$43,261
After-tax cost of donation	$604	$56,739

*Alberta provincial tax credits average 50% of the federal credit, and further reduce tax owing. Each province has its own specific tax credit rate. There are also surtax reductions and other considerations. To determine a true reduction in taxes owing as a result of a gift, please seek professional assistance from a tax expert.

To maximize the tax credit, Canada Customs and Revenue Agency (CCRA) allows spouses to pool donation receipts and report them on one tax return. If you make small annual donations, you can save receipts for up to six years, including the current year, and then make one combined claim.

The simplest type of planned gift is a gift by will, known as a bequest. Bequests are very common. In fact, more than 80 percent of planned gifts received by charities come from bequests.

The donor states in his or her will that on death property be given to a specified charity. The gift may be a cash donation or may be a gift of property such as a work of art or publically listed securities. It may be a specific amount or asset, or a percentage of the estate.

A bequest to a charity is very easy to put in place, can be modified at any time, and allows you to retain full use of the gifted property during your lifetime. In addition, the tax receipt the charity issues to your estate may result in a tax credit on your terminal income tax return. (Your estate may claim donations of up to 100% of your net income for the year of death and the year preceding death.)

Types of Bequests

A specific bequest is one in which the donor gives a specific dollar amount or a specific piece of property, such as real estate, stocks, bonds, or works or art.

A residual bequest is used to give the charity all or a portion of the donor’s estate after all the debts, taxes, expenses and other bequests have been paid.

A contingent bequest takes effect only upon the occurrence of some other event(s). For example, you may choose to make a charity the contingent beneficiary in the event that the individual named in your will is not alive at the time of your death.

Whatever the form of your bequest, it may be designated for an unrestricted use or a restricted use. Where the purpose is unrestricted, the charity’s Board of Directors has the discretion to decide on the use of the funds to ensure that the charity continues to provide services in accordance with its mission. If you wish to restrict the charity’s use of the funds to a specific purpose, your will should reflect that. Your will should, however, always authorize the charity’s Board of Directors to apply the bequest to other purposes (while still conforming as much as possible to the spirit and intent of your bequest) in the event circumstances make your specified use of the bequest impracticable or undesirable.

As you can see, there are many ways to leave a lasting legacy to the community through a bequest in your will. If you would like to add a bequest provision, it is very important that you consult with your lawyer. This will ensure that the appropriate language is used to help you achieve your overall estate planning objectives. Your charity of choice would be pleased to provide your lawyer with the organization’s correct legal name, charitable registration number, and any other information that may be required.

A gift of securities provides an innovative and creative way to make a charitable gift and can often help fund a larger gift than you might otherwise be able to make. Securities can include stocks, bonds, bills, warrants and mutual funds.

Gifts of publicly listed securities are becoming increasingly popular. Federal incentives introduced in early 2006 have made it very attractive to donate publicly listed securities that have appreciated in value. Canadians are not taxed on the capital gain when they donate securities to a charity. This compares to a tax on 50% percent of the capital gain if the securities are sold outright.

Here is an example of the tax benefit you might receive if you 1) sell the securities and donate the cash to a charity or if you 2) donate the securities directly to a charity. The donor in this example purchased securities for $20,000 that are today worth $100,000.

	Give Securities to a Charity	Sell Securities and Donate the Cash to a Charity
Fair market value of the securities (tax receipt is issued for this amount)	$100,000	$100,000
Cost basis (cost to purchase stock)	$20,000	$20,000
Capital gain (market value less cost)	$80,000	$80,000
Taxable gain	$0 (taxed on 0% of the capital gain)	$40,000 (taxed on 50% of the capital gain)
Tax payable on gain (@ 39%)	$0 ($0 X 39%)	$15,600 ($40,000 X 39%)
Tax credit @ 40% (estimated combined federal and provincial tax credits) ($100,000 X 40%)	$40,000	$40,000
Tax savings (Tax payable on gain less tax credit)	$40,000	$24,400

As you can see, it is to your advantage to donate appreciated securities to your charity, rather than selling them and donating the cash. In the above example,

            Donating securities valued at                      $100,000
            Will result in tax savings of                         $40,000
            The after-tax cost of the donation is            $60,000

            Selling securities and donating proceeds of    $100,000
            Will result in tax savings of                         $24,400
            The after-tax cost of the donation is            $75,600

The process of transferring securities to a charity is rather simple. The securities may be transferred from your brokerage account to the charity’s brokerage account, or the security certificates may be endorsed and delivered to the charity.

Other than bequests, life insurance is the most widely used type of planned legacy gift made by Canadians.

A current gift of life insurance: You transfer ownership of the policy to the charity and receive a charitable donation receipt for any cash surrender value as well as for the premiums you pay after ownership is transferred.

A deferred gift of life insurance: The charity is named as the beneficiary of the policy, and the estate receives a charitable donation receipt from the charity for the insurance proceeds it receives upon your death. You do not receive a receipt for premiums you have paid.

There are a number of ways to make a gift to charity through life insurance. Your options include:

Making the charity the owner of an existing, or new, policy
If you already own a life insurance policy, or if you purchase a new policy, you may make a charity the owner and name it the beneficiary. You will receive a charitable tax receipt for the policy’s cash surrender value and for any premiums you pay once ownership is transferred to the charity. Premiums can be paid either to the insurance company or directly to the charity.

Naming a charity as primary beneficiary, or as co-beneficiary
A charity can be made the beneficiary of an existing policy that you retain ownership of. This is the preferred option for donors who wish to make a charitable gift but want to retain access to the cash value of the policy, or who want to be able to change beneficiaries if their circumstances change. Because you can change your mind about naming the charity as the beneficiary, a tax receipt cannot be issued for annual premiums. You estate will receive a charitable tax receipt when the charity receives the gift.

You also have the option of naming a charity co-beneficiary with another individual(s) or another charity(ies).

Naming a charity as contingent beneficiary
A charity can be made a secondary or contingent beneficiary of a life insurance policy. Should your primary beneficiary(ies) predecease you, the charity, as contingent beneficiary, will receive the policy proceeds. Because you can change your mind about naming the charity as the beneficiary, a tax receipt cannot be issued for annual premiums. You estate will receive a charitable tax receipt when the charity receives the gift.

There are other options available to you if you wish to make a legacy gift through insurance. Contact your insurance or financial advisor for more information.

Real estate is a fairly common type of charitable gift. You will find that charities will be very diligent when considering accepting a gift of real estate. Although potentially very beneficial, gifts of real estate are often fraught with potential problems and liabilities such as outstanding mortgages, zoning restrictions, environmental concerns, and the possibility the property will be difficult to sell. Charities will do a careful review before accepting the gift to ensure all potential problems are identified and assessed. Unless useable by the charity, a gift of real estate will normally be sold by them and the proceeds used for the purposes designated by the donor.

If you make a gift of real estate to a charity you will receive a charitable receipt for the fair market value of the property as determined by a qualified appraiser. The donor is deemed to have received proceeds equivalent to the fair market value and must presently report 50% of the capital gain when appreciated property is donated to a charity.

You also have the option of retaining a life interest in real estate that you gift to a charity. This allows you to retain the right to use the property during your lifetime or for a term of years. For instance, if the real estate you are giving to a charity was your residence, you would be able to live in the home for your lifetime. The charity would issue a tax receipt based on the value of the real estate adjusted for your life expectancy.

A “gift-in-kind” means a donation of tangible property instead of cash. Donations of property such as works of art, antiques, jewellery, stamp or coin collections, or mortgages enable many donors to make a larger contribution than they would otherwise be able to make from income.

The amount of the donation receipt for in-kind gifts is the fair market value of the property on the date ownership is legally transferred to the charity. Gifts-in-kind worth more than $1,000 must be accompanied by a well-documented appraisal completed by a reputable professional. If you give appreciated property, you must report the capital gain.

You will find that your charity likely has policies and procedures for accepting gifts-in-kind. These guidelines are to protect the organization and not to inhibit your charitable intention. It is strongly recommended that you, your advisors, and your charity work together to ensure the charity is positioned to accept the intended donation.

Retirement funds represent a major personal asset for most donors. Donors enrolled in an RRSP, and those who have already converted their RRSP to a RRIF, can make a charitable gift of all or a portion of any retirement funds remaining at death.

If you are married and have a surviving spouse, your spouse would ordinarily be the beneficiary of any retirement funds. If you have an RRSP at the time of death, your surviving spouse is permitted to maintain it in a tax-deferred plan. If the RRSP had already been converted to a RRIF, your spouse could continue to receive the payments from the RRIF.

If you are not survived by a spouse, retirement funds can make an excellent charitable gift. Donating your RRSPs or RRIFs to your charity, whether under the terms of your will or by a direct designation, will result in your estate receiving a charitable tax receipt. The resulting tax credit will normally offset the tax due as a result of the distribution.

A charitable gift annuity enables a donor to gift a lump sum to a charity and in exchange receive fixed lifetime annuity payments.

Charities that offer this option will either use part of your contribution to purchase an annuity from an insurance company, or will hold and invest the principal themselves. Either way, the annuity provides guaranteed fixed payments to you for a specified number of years or for life. Couples may choose a “joint and last survivor” policy, which will provide payments for the lifetime of both individuals.

The charity will issue a receipt for the amount by which your gift exceeds the total anticipated annuity payments, as based on life expectancy tables. Much or possibly all of the income you will receive from the annuity will be tax-free, as Canada Customs and Revenue Agency (CCRA) will consider all or part of your annuity income a return of capital. This type of gift has the greatest tax advantageous for donors aged 65 year or older.

Speak with your insurance professional or financial advisor if you are interested in establishing an annuity. Since not all charities accept charitable gift annuities, it is best to speak with your charity’s planned giving professional early in the process to ensure they do.

A charitable remainder trust is a trust that pays income to the donor (or other beneficiaries) for life or for a set term. When the trust terminates (which is upon the death of the donor or beneficiaries, or at the end of the specified term), the charity receives whatever remains in the trust.

A charitable tax receipt is issued for the present value of the future gift (the “charitable remainder”) that the charity will receive when the trust terminates.

Speak with your advisors if you are interested in establishing a charitable remainder trust. Since not all charities accept charitable remainder trusts, it is best to speak with your charity’s planned giving professional early in the process to ensure they do.

If you wish to gift capital property (for example, real estate or artwork) to a charity but retain the right to use the property during your lifetime, you may wish to consider making a gift of the “residual interest” in the property to the charity. If certain conditions are met, your gift will qualify for a tax receipt.

Donors making a gift of residual interest to a charity must realize that the gift is given irrevocably, and that they cannot regain title to the property. The property is removed from the donor’s estate and will not be available to other estate beneficiaries.