Articles & Cases

Planned Giving in Ontario

September 27, 2005

There are many ways to benefit charities and causes that you support including volunteering, making a cash gift and also planned giving. Cash gifts are immediate, involve little risk and are simple to effect - however they are not always the best way to give for some people in certain circumstances.

Planned giving involves tools and techniques to facilitate gifts to charities typically involving the assistance of professional advisors and trying to maximize tax incentives and charitable giving and to balance financial, personal, family, and philanthropic objectives. It could be as simple as putting in a small legacy in your will to setting up a private foundation. Some planned gifts, such as gifts of stock, are immediate, while others, such as a charitable remainder trust are deferred. Some of revocable, such as a bequest in a will and some are irrevocable. In Canada sometimes the area is referred to as gift planning.

Planned giving can in certain circumstances allow individuals with average financial resources to achieve larger gifts than they ever thought possible and to make a great difference in this world we live in and others the attraction is to leave a meaningful legacy. It also takes into account all the complexity of an individuals personal and estate situation.

In this short note I will highlight some of the different planned giving techniques used in Canada including:

1) Placing a legacy in your will.

This is the most common type of planned gift and results in the vast majority of funds received by charities in the planned giving area. There are a number of ways this can be accomplished in a will including leaving a dollar amount to a charity, leaving a percentage of one's estate to a charity, or in some circumstances leaving one's whole estate to one or more charities. It is advisable to discuss with a lawyer the mechanics of accomplishing this as part of your estate planning. You may wish to read my article entitled "Leaving a Bequest to a Charity - How a little legal advice can go a long way" The advantage of leaving a bequest in your will includes the flexibility of later changing either the beneficiary or the amount of your gift as your financial situation changes. Furthermore, it is for some difficult to give away large amounts of money during their lifetime if they are concerned that their savings will not be enough to support themselves as they do not know how long they will live and what expenses they will have up to their death. For some a bequest allows a greater gift to be made than one could achieve annually because at your death, or the death of yourself and your spouse, you know that the funds in some cases are not needed anymore. It is especially attractive for those who are older and do not have children or they have children who are self-sufficient. Another benefit of bequests is the simplicity - they can easily be added to your will while you are doing your other estate planning. I would just caution that if you are making a substantial donation to a charity that you use a lawyer who has some familiarity will planned giving and that you ensure the issues raised in my article
"Leaving a Bequest to a Charity - How a little legal advice can go a long way" are adequately dealt with. The disadvantage of a bequest from a charity point of view is the potential revocation by the testator preparing a new will or a codicil as well as the possibility that a relative or other will attempt to set aside the will as they may receive a greater amount under an intestacy (when there is no will) or under a previous will.


2) Donating appreciated public company shares (marketable securities)

If you have public company shares that have increased in value then it is more tax efficient to donate the actual appreciated shares to a charity, rather than selling the shares and then donating the after tax cash amount. Some people in Ontario if they sold shares would have to pay 24% tax on the amount the shares have appreciated in value, but if you donate the shares to a charity you pay no capital gains tax. The effect of this special concession results in a donor getting a greater tax credit for their donation. This advantage of donating appreciated public company shares applies to donations to charitable organizations and public foundations, but not private foundations. Furthermore, it does not apply to private (CCPC) corporation shares. The larger the amount that the public company share has appreciated, the greater benefit this type of planned gift provides. The advantage of gifts of appreciated marketable securities, in addition to their tax effectiveness, is the ease with which they can be completed. If the charity has an account with a brokerage, and most now do, the shares can be transferred in a matter of days.

3) Transferring or donating life insurance to a charity.

In some cases a donor can for a relatively modest amount purchase a large life insurance policy to benefit their favourite charity. If the donor will have substantial taxes that they have to pay at death the tax receipt for the death benefit can assist the estate.

4) Designating an RRSP to charity.

If you own a RRSP then you can beneficiary designate the RRSP to a charity upon your death. Although your estate will have to pay the income tax on the death, the estate will receive a tax credit from the charitable contribution which will offset the taxes owing from the dissolution of the RRSP. The advantage of this technique is that the gift is outside your estate, not subject to creditors or your will being set aside. As well the amount given to the charity will depend on the amount in the RRSP or RRIF at the date of death. You can easily change the beneficiary designation if you wish to change the charitable beneficiary and if you wish to give less to a charity you can remove some of the funds from the RRSP or RRIF and there is no need to change your will, although you will be taxed on the amount removed in the normal course.

5) Donor Advised Funds at a Community Foundation or Bank

Community Foundations, such as the Toronto Community Foundation, have become quite popular because you can have your own 'foundation' without the hassles of administering a private foundation. In some cases you want to benefit local community or to have the funds targeted to a particular concern within the community. Other times a donation is provided to the community foundation (or bank donor advised fund) to set up a donor advised fund and you receive an immediate tax receipt. Every year you can provide recommendations as to which charities should receive income from the funds. They also provide expert advice in areas such as investing, regulatory requirements and they handle all the paperwork. Donor advised funds are particularly attractive for those who wish to make a large charitable donation but are not sure of exactly which charity they want to benefit. As well community foundations have excellent investment experience, unlike many small charities, so that if you want to benefit a small charity the community foundation could invest the funds and an amount would be disbursed every year. Another attraction of donor advised funds is that one can be set up for as little as $10,000 or $25,000.

6) Buying charitable annuities.

Some charities sell annuities which provides the donor with a stream of income while they are alive in return for the donor purchasing an annuity. Some larger charities self-insure the annuities while others arrange for an insurance company to insure them.

7) Private Foundations

A philanthropist may wish to consider setting up a private or family foundation to achieve philanthropic objectives. With a private foundation all the funds can come from one person, or several, and the board of directors can all be related to one another, although it does not have to be so. When funds are donated to a private foundation the donor can receive an immediate tax benefit. As well, if structured correctly, the donor only has to disburse a small amount of the funds each year. Private foundations received slightly less favourable tax treatment than charitable organizations or public foundations. For example if one donates public company shares to a public foundation you do not have to pay any capital gains tax, whereas this positive treatement does happen if the donation is made to a private foundation. If you are donating cash or shares that have not appreciated then it makes no difference from a tax point of view. A private foundation has registered charitable status and therefore in addition to the corporate/trust requirements the private foundation has annual CRA reporting requirements. Some people find that the cost and administrative complexity of a private foundation is burdensome and may prefer to have a donor advised fund at a community foundation.

8) Charitable Remainder Trusts

Property, such as a house or investments or art work, can be placed in a trust, sometimes referred to as a charitable remainder trust, for the benefit of a Canadian registered charity. The donor can use the property during their lifetime, obtain a charitable receipt today for the present value of the residual interest and the property would upon the death of the taxpayer be used or sold by the charity. The advantage of the CRT is that you can make a donation now, keep on using the property while receiving the tax benefit now. It is especially useful with donations of homes which are required during your lifetime. As well if one has large amounts of income this year the receipt from the charity can be used to immediately offset some of that income. While charitable remainder trusts are very popular in the United States, they are used far less frequently in Canada. Establishing a Charitable Remainder Trust involves substantial time and expense, in terms of legal, accounting and valuation services and advice and the ongoing cost of administration.

9) Shares in Private Corporations

Much wealth in Canada is tied up in private companies and shares of private companies can be quite valuable. It is very difficult to arrange gifts of private company shares, but in very few cases it can be the appropriate mechanism for making a large donation. Some of the concerns include the difficulty of valuing the private shares, the need for the donor and his/her family to be arms length from the charity, potentially substantial capital gains without the benefits that marketable securities enjoy, sizable professional advisor costs, difficulty of many smaller charities to effectively deal appropriately with the gifts, disappointment of donors in some case as to the amount of the tax receipt, and disappointment of the donor that the process may take months or even years. Other concerns include the charity becoming a shareholder in the company. Often with private company shares it would be preferable to sell the shares and then make a donation by cheque to the charity! For charities the donation must be in many cases substantial to be worth the effort and often there are significant concerns as to the costs of setting up such a gift, the liquidity and value of the shares, and restrictions on the shares. Before accepting such a gift significant legal and accounting assistance must be provided to both the donor and charity, by lawyers and accountants who are very familiar with private companies.

If one is making a planned gift then it is important that one understand all the ramifications and one should discuss the proposed gift with your advisors, potentially including lawyers, accountants, investment advisors, depending on the nature and size of the gift. It is also important that someone coordinate the planned gift with the charity or charities in order to ensure the maximum benefit is achieved.

If you are interested in planned giving you can contact the Canadian Association of Gift Planners, you can speak to a particular charity's Planned Giving officer, or if you have any questions about planned giving please contact Mark Blumberg at 416-361-1982 or mark@blumbergs.ca. Mark is the Chairperson of the Professional Advisors Committee of the Greater Toronto Roundtable of the Canadian Association of Gift Planners.