If philanthropy is important to you, you may be able to contribute much more than you thought possible through strategic planning
By Lola Augustine Brown
We’re all bombarded with requests for help from charities, whether via glossy brochures in our mailboxes, online requests, or requests from friends to sponsor them in a 5K walk or run. The fact is that charities need our support more than ever: the number of Canadians donating is falling, as is the amount that we are donating.
The total amount of charitable donations claimed on Canadian tax returns in 2015 was more than $9 billion—$9,485,215,050—but that number is smaller than in previous years and is trending downwards. The trend is troubling: charitable organizations do essential work in our communities, but without our donations, they can’t survive.
There are many misconceptions about charitable giving, with perhaps the most common being that leaving money to charities in a will is something that only the very wealthy can afford to do. This simply isn’t true.
Jill Nelson, an associate vice-president of The Princess Margaret Cancer Foundation, says that no matter how small your gift, that gift combined with those from other people is powerful. “We get support from all kinds of people, from a young girl who sets up a lemonade stand because she saw her aunt helped by our foundation, to older people who leave a gift in their will.”
Malcolm Burrows, the head of Philanthropic Advisory Services at Scotia Private Client Group, says that many people are incredibly generous, leaving as much as 100 per cent of their estate, even though they lived a modest life.
“I use the analogy of the two pockets,” Burrows says. “Most of us spend our lives giving out of the income pocket—$25 here and $50 there. The majority of Canadians do that, helping in our communities as and when we can. Very few Canadians, about five per cent of us, dig into our asset pocket to donate,” he says. “However, most of my clients are focusing on their estate plans, as opposed to lifetime giving, and for the most part, these are asset-rich middle-class clients.”
So most of us give here and there with no idea of
the impact we could make by learning more about the mechanics of giving in Canada and incorporating our desire to do good with some sound financial planning. We consulted leaders in the field of charitable giving to find out how Canadians can best help and how, by doing so, they can take advantage of some very favourable tax incentives.
The Power of Legacy Gifts
“With strategic or bequest giving, anybody can be a philanthropist,” says Ruth MacKenzie, the president and CEO of the Canadian Association of Gift Planners (CAGP).
“Canada has the most generous tax incentives in the world for charitable giving,” Burrows says, adding that these incentives have all been introduced within the past generation, so they’re relatively new. “They support Canadians’ giving, and you can fully eliminate your taxes by giving to charity in your will. It’s radical.”
The first incentive that Canadians have is tax credits. “If you’re in the highest marginal tax bracket, you’re paying about 50 per cent or more in tax, but you’re getting a lot of that back if you give to charity,” Burrows explains. “Second, if you have an estate that results in a big tax bill on the final tax return, you can claim gifts equal to 100 per cent of your income in your final year of life and one year back. If you give enough, it can wipe out taxes on the final return, which means that your family would not be paying taxes on your estate.”
Simply, instead of leaving lots of money to Canada Revenue Agency (CRA), you can give it to your favourite charity instead. The tax system encourages us to do this, and by doing so, we free up more money for our families. “So it’s not about giving to charity and disinheriting family, it’s about going through a process of balancing. Very few people realize this,” Burrows says. These tax incentives began in 1997, at a time when there were significant government cutbacks to social services and it was therefore necessary to encourage Canadians to give more. “We’ve had different governments since that time, and the regime has been supported and expanded by each,” he says.
There are other tax incentives relating to public securities. “If you have anything that is listed on the TSX or NASDAQ and it has gone up in value, as a taxpayer, you’ll pay money on the capital gains. If you donate that stock in kind to charity, that capital gain is no longer payable and you will get a tax receipt to give you a tax credit,” Burrows says.
All these incentives are not primarily in place as tax planning tools, and most Canadians don’t donate simply because they think they’ll gain a financial benefit by keeping their money. “Tax planning isn’t most Canadians’ motivation for giving,” Burrows says. “We have all of these incentives in the system, but most people don’t give any thought to them, because that isn’t their motivation.”
“With most donors, when they leave us a gift in their will, it’s because they really believe in the cause and they are supporting that cause into the future, knowing that the money is going to be spent well and, in United Way’s case, will be going back to communities,” says Michelle Bernard, the manager of philanthropy at United Way of the Lower Mainland, in Burnaby, BC.
Being able to share the good news about the tax benefits of donating is something that fundraisers enjoy doing. “When potential donors tell me that they would like to leave a bigger legacy gift but also want to leave everything to their kids, my standard response is, ‘It’s wonderful that you want to leave everything to your kids, but there are some tax benefits to leaving a gift to a charity such that your estate won’t have to pay as much money in taxes,’” Bernard says. “Until you start letting people know this, they don’t realize that they may actually be able to leave more money to their children by leaving a gift to charity.”
While many of us would prefer not to think about what happens after we’re gone, planning ahead in a positive way can help us feel a whole lot better about it.
“There’s something about building the legacy of your life while you’re still alive that can be really powerful and meaningful,” says MacKenzie. “It’s a time to be more reflective and to think about what your values are and what you want to exemplify about yourself, and you can put the building blocks in place while you are still around to do that.” Think about this as part of your entire financial package.
If you’re one of the 48 per cent of Canadians who have no will (according to a study by BMO Wealth Management), then your first step in planning out legacy philanthropy is to remedy that. “When I find out that clients don’t have a will that addresses these things, I slow them down and say, ‘Let’s focus on making sure that the fundamentals are in place first.’ There are situations in which immediate gifts make a lot of sense, but there’s a danger of cart-before-the-horse planning,” Burrows says.
If you live where house prices have risen dramatically (notably Vancouver and Toronto), then you may be in a unique position to grant a very healthy legacy gift when you pass, but you have to prepare.
“Some donors may not have been in a position to give a significant gift in their lifetime, but, especially in Vancouver, you have a lot of people who bought homes when they were young and are now millionaires when they sell that home. Or they pass away and their family sells their home and suddenly the estate consists of millions. Yet they never thought that they were going to have that kind of money,” she says. This can lead to significant tax issues for the beneficiaries of your will. By educating yourself on how charitable giving can help counter those taxes, you’ll be helping your beneficiaries a great deal when the time comes to settle your estate.
The power of legacy giving in no way diminishes the importance of giving our time and financial support to charities while we’re still around to see the difference that we can make. MacKenzie says, “There are lots of strategic ways of giving that can enable donors to give to charities while they’re still around, and charities love it, because while they gain the important revenue they need, it’s also an opportunity for them to recognize those donors,” she says, “which is nicer in some ways than simply acknowledging them to their families after they’re gone.”
Finding an Advisor
Not all financial advisors are well versed in strategic gift planning or especially interested in supporting their clients’ philanthropic aspirations.
“For professional advisors who make their money on fees based on dollars that they manage for their clients, the idea of supporting their clients to give that money away is counterintuitive, because that way, they make less money,” MacKenzie says. However, CAGP studies have shown that those advisors who have made this a part of their business have seen their businesses grow as a result.
“It may not be that their business has grown in terms
of the assets per client, but it builds a really strong relationship between advisors and their clients; clients are therefore more likely to recommend advisors to their kids, friends, or other people in their networks,” MacKenzie says. “Offering this service sets an advisor apart.”
A good first step if you want to learn more about strategic giving is to contact your local chapter of CAGP (cagp-acpdp.org) and attend a CAGP Leave a Legacy event, where you can connect with members and find an advisor.
Burrows is a member of CAGP and says that there are a number of reasons why Scotiabank is interested in supporting clients with their philanthropy. “We’re in the business of wealth management. That was defined at one point very narrowly as being about investments, and that’s certainly a very important part of the business, but the breadth of needs that our clients have is remarkable,” he says. “We have clients who are very interested in philanthropy, and we’re looking at integrating that financial estate planning with philanthropy.”
When you’re looking for a financial advisor, you need to ensure that he or she is going to offer holistic advice that’s in line with your values so that you can be confident that he or she will focus on all your needs, as opposed to just the one that’s going to bring the advisor a profit. “Good holistic wealth management firms will have resources, make referrals, and have in-house expertise on gift planning,” Burrows says.
For some donors, deciding where to give is easy, because they have some personal connection with a charity. “People often give to us to fight back against cancer because it took somebody they really loved; they hate how that person had to suffer and they want to make a difference for the future,” Jill Nelson of The Princess Margaret Cancer Foundation says. “For those people, giving to the foundation is a very life-affirming gift; even if it doesn’t happen until that person dies, it’s really about what he or she stood for.”
If you already have that connection with a charity, there’s likely a high level of trust, and for that reason, Nelson says, most of their donors don’t generally have a lot of questions before they contribute. “But for anybody who does have questions, we want to be fully transparent about how the money is used—for example, how much we spend on administration. We don’t want people giving and not knowing what the money is going to achieve.”
Most charities have a website where you can find a lot of answers, but if you can’t find what you’re looking for, Nelson advises picking up the phone to ask whatever questions you need to. “We are so grateful to donors. If it’s important to you to look into what the charity will do in terms of telling you about how your gift is being used, what the charity is accomplishing, and what kind of recognition it might offer, ask away,” she says. “Once you’ve found the answers to your questions, you can give that gift with a full heart.”
Burrows agrees that one of the best things that people can do is to speak with charities. “You’re giving an irrevocable gift—you’re not going to get it back—so the time to do your due diligence is ahead of time,” he says. “One of the great things about charities is that they are generally very open; they’re happy to show you around their operations. I’ve found that clients who have the greatest satisfaction and joy in giving are the ones who have these connections. There’s no need to rush in immediately when it comes to giving these kinds of gifts.”
One thing many people have trouble getting their heads around is the administrative costs at charities. We want to think that every penny we donate goes straight to helping those in need and not towards an administrator’s salary or paying for ads in newspapers. According to a 2013 study by the Muttart Foundation and Imagine Canada, 73 per cent of Canadians believe that charities spend too much on administration and fundraising.
United Way’s Michelle Bernard says that administrative costs happen and are essential to running any charity. “You have to spend money to make money and you still need to have people in place to do the jobs. The majority of charities keep administrative costs quite low, and sometimes you see the glossy brochures but don’t realize that a lot of that time and money is sponsored or donated.”
Bernard points out that CRA has guidelines in place for how much charities can spend on these costs. “If your administration and fundraising costs exceed more than 35 per cent of your overall operating budget, that’s a cause for concern,” she says. (You can check the status of any registered Canadian charity by searching for “Charities and giving” on the CRA website, canada.ca.)
For charities to thrive, especially in today’s competitive market, administrators and fundraisers are essential. “A lot of people don’t realize that we are the second-biggest funder for social services in the country, or realize how many projects United Way supports,” Bernard explains. “If we weren’t here, it would make a big difference, and that’s why the education component is important.” Bernard adds, however, that it’s not her job to advise the donor or client, only to educate. “I always recommend that they speak with their financial advisor or accountant about their personal financial situation,” she says.
When you’re considering which charities to support, Burrows encourages you to look beyond the well-known organizations. “There are 86,000 charities in Canada; two-thirds are volunteer-run and have revenues under $100,000 a year. There’s often a tendency to go towards the equivalent of big businesses, but there are so many wonderful community organizations doing great things with nothing,” he says. “They are innovative, they are passionate, and they’re connected to communities and doing phenomenal work.”
Giving Your Time
Finally, charities are always going to need volunteers, especially those who show up with essential skills and years of relevant experience.
“Lots of baby boomers want to do more than just play golf when they retire,” Burrows says. “A lot of people take this time to become involved with volunteering for charities, which gives them a sense of purpose, focus, and connection to a larger community. I know one CEO of a public company who retired early to volunteer for charities; he has headhunters calling him all the time to offer him jobs, but he says, ‘No, I like doing this.’ The value that he brings because of his management experience and strategic thinking is extraordinary. Many retired people have time and wisdom to offer.”
Reaching out to charities you’re interested in helping is a great first step in working out how you can volunteer your time—whether your idea of volunteering involves sitting on a board, helping with administration, or helping to deliver meals to people in need.
No idea what you’re interested in right now? Visit the Volunteer Canada website (volunteer.ca) and hit the “I Want to Volunteer” link to get a list of local organizations in need in volunteers.