Charitable Choices

I’ve heard of planned giving, but I’m a bit confused about all the different options available nowadays for giving to charity. Can you tell me which might be best?

There is no best option, only what’s most suitable for your needs. And “planned giving” can encompass just about any philanthropic arrangement. Canada Revenue Agency defines it thus: “Planned giving is a fundraising pro- gram that involves arranging donations to serve the interests of the registered charity and that suits the personal, financial, and tax situation of the individual donor.”

First, you must decide how much you can give and when. Do you want to simply donate lump sums when it’s convenient or set up an ongoing program of regular donations? To one charity or several? How much? Once you’ve determined exactly what you want to do, you can consider what type of plan is most appropriate.

Donor-advised funds (DAFs) have become very popular and can be arranged through most financial institutions. DAFs involve setting up a fund and putting assets into it and then doling out the resulting investment earnings, and perhaps some of the principal, as grants to the charities you select, at times of your choosing. You can give the earnings or a fixed percentage of the total periodically, or you could let the fund grow untouched so that it generates larger donations down the road. Or, you could buy an annuity that will generate a steady stream of fixed payments every year. Or, you could buy life insurance with the beneficiary being the charity—you pay the premiums, and at the end of the road the charity receives the insurance proceeds tax-free.

The bottom line is that there are many ways to give, some simple and some not so simple. If you’re not sure what to do, reach out to your financial adviser or contact the charity of your choice and ask for some guidance.

I’m 76, single, and have no children or close relatives. When I pass on, I’d like to leave to charity whatever is left of my estate after all the bills and taxes have been paid. Is there anything I should know about this?

There are some significant differences between making donations while you’re living and making them after you’ve passed on, and your estate executor should be made aware of these differences. First, while donations made while you’re alive are claimed on your T1 tax return, donations made by your estate must be claimed on the T3 Trust Income Tax and Information Return, because an estate is considered to be a testamentary trust. This means that it’s possible that both T1 and T3 returns will have to be filed for the year of death to cover income and expenditures (including donations) made before and after death that year.

Second, the limit on donations you can claim in the final year is much higher than in preceding years, when the limit is generally 75 per cent of net income. In the final year, the limit is 100 per cent of net income, and additional donations can be carried back and claimed on the previous year’s T1, up to a limit of 100 per cent of the deceased’s net income for that year.

In addition, most estates qualify to be treated as a Graduated Rate Estate, which reduces the amount of tax owed. There are a number of other possibilities for reducing taxes as well, so it’s best to choose an executor with knowledge of estate taxation in order to minimize tax and maximize the amounts left for charity. For this reason, many people choose a professional executor such as a trust company or an accountancy rather than a personal friend—the fees may be higher, but they can be more than offset by the savings.