Give generously. Everyone understands the draw of helping others and giving back to the community. To make a substantial commitment to ongoing charitable giving is commendable and should be welcomed, not only by the recipients but also by the families and friends of the donors.
So where’s the hitch? A recent Globe and Mail article highlighted the best tax strategy to help people maximize their charitable contributions, while minimizing their tax burdens and diminishment of estate revenues.
The article provides a very useful starting point for a discussion within high net-worth families – because it’s within families where tensions and disagreements can surface. Family members are often principally concerned about their share of an estate, more than they sympathize with the donor’s concern for a specific charity.
But as the article points out, there are several strategies for keeping the family happy, while also preserving the intent of the donor.
One way is to establish a foundation. While this solution creates revenue certainty, it really only applies to people who are ready to donate more than $1 million and work with a board.
A simpler alternative to a foundation is a trust. It provides a more flexible revenue and tax stream model than a foundation, so you can adjust terms as conditions and laws change.
Or you can set up donor-advised funds, where you make a lump-sum donation and then inform the partner organization about where to direct the funds. The Mackenzie Charitable Giving Program offers this service through its Strategic Charitable Giving Foundation. You make an initial donation of a minimum of $25,000. You get to choose the charity or charities you wish to support with your donation. The entire amount is eligible for a tax receipt in the first year. The account is then distributed to your selected charities at a rate of either 4% or 8% annually.
Another option is to name a charity as the beneficiary of a life insurance policy. This is very clean solution, as all proceeds go directly to the charity, with no probate fees or taxes to be paid.
You can also donate a specific stock, relieving you of the capital gains burden.
Also worth considering is making a charity a partial or full beneficiary of a specific RRSP or RRIF account, particularly useful in the year of someone’s death to reduce the load of taxes and probate fees.
All these options have advantages in certain circumstances.
We would be pleased to discuss them with you to see if there’s a plan that will satisfy both you and your family.
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