Tax Articles
A Primer on Planned Giving
Globe and Mail
Bruce Ball, CA
More and more, the term “planned giving” is referred to in articles and promotional material from charities. But what does it really mean?
Simply put, planned giving means leaving a legacy to charities using a plan that combines gifts made during your lifetime and gifts made as a bequest on your death. Many individuals focus on planned giving as an estate planning exercise, to keep full access to their accumulated wealth before death.
With the generous tax benefits available, most strategies are structured around our income tax rules. However, you should establish your charitable giving goals first and then work with a professional to maximize the tax benefits. Your financial needs and overall estate plan also need to be considered.
The tax benefits are significant. In addition to the donation credit that is available (at the individual’s top marginal tax rate for gifts over $200), planned giving strategies can take advantage of the fact a gift of most publicly-traded securities will not trigger a taxable capital gain even though the full value of the security will count as a donation. To benefit, your planned giving strategy could be as simple as transferring some of your investments to your favourite charity annually, ensuring that you choose investments with the most significant accrued gains. If you do want to hold the gifted investment, you could liquidate another investment (preferably without a gain) and repurchase it after the gift is made.
Another popular strategy is a charitable bequest – you can name one or more charities as a beneficiary in your will, and the value of the property transferred counts as a donation for the taxation year in which you pass away and the previous year. When you draft your will, the gift can be expressed in terms of a dollar amount or a percentage of the estate value (if conditions are met). Where you won’t be transferring securities to a spouse or common-law partner, you can also structure your charitable bequest to ensure that publicly-traded securities are gifted, which will eliminate the gain on the security that would otherwise be taxable on death.
A charitable bequest can also be as simple as naming a charity as the beneficiary of an insurance policy or your RRSP or RRIF. These direct designations will not be subject to probate tax. For RRSPs/RRIFs, the donation credit will offset the tax on the deemed plan income arising on death.
Remember that charitable donations give rise to a non-refundable tax credit. Therefore, the benefit of a donation will be lost if the credit exceeds tax otherwise payable. Where a large gift on death is planned, it’s possible that the donation credit available may not be fully utilized. This problem can generally be avoided by making larger gifts during your lifetime and a smaller gift on death.
The government has provided significant tax advantages for planned giving – any tax you save will be passed on to your heirs and the charities you want to benefit.
Bruce Ball is a chartered accountant and tax partner with BDO Dunwoody LLP in Toronto.
