What to know about leaving your money to a good cause
Science shows that helping others can make you feel healthier and wealthier. That is often at the core of why many people – affluent or not – donate to charity or a good cause. In Canada, charitable giving appears to be alive and well among the ultra-wealthy based on several high-profile examples announced in 2019. These included a philanthropist couple with plans to create a $100-million endowment fund to support health research at two hospitals and a university in the city of Hamilton, Ontario; A donation of $100 million to the Hospital for Sick Children in Toronto – its biggest single gift ever; and a $200-million gift for a scholarship program at McGill University – one of the largest donations in Canadian history.
Inspirational examples like these may prompt you to think about philanthropy and how to go about leaving your money to a charitable cause. For starters, not everyone has to be “ultra-wealthy” to make a generous charitable gift or financially support a cause. Today, more people are in a position to distribute their wealth beyond their immediate family. And studies have shown that people with higher incomes are more often approached for donations, which also increases their opportunities to donate and the social pressure to do so1.
Here are some key questions to consider that can help you organize and set priorities for your own charitable giving:
- If you’re new to philanthropy, what do you want to support; how do you want to support an organization (a one-off gift or multi-year commitment); which platform or structure should you use (foundation; trust; donor-advised fund etc.); and what is your time horizon – (during your lifetime, through your estate or a combination); will the gift be for a limited term or in perpetuity?
- If you’re already a benefactor, how do you currently support a charitable cause, and is there a more effective structure – that is, a tax-efficient one – so that your legacy has the greatest positive impact on the causes you support?
- Do you want to be acknowledged or give anonymously?
- Do you want to involve your children in the act of giving?
- Do you want to have any charitable bequests outlined in your will?
Making a long-lasting commitment to a non-profit organization requires time and effort and should not be undertaken lightly. Some Investment Advisors may take on or help you with this due diligence. Make sure you understand the organization’s mission, goals and progress as well as its financial health, accountability and transparency practices. Ultimately, you should feel confident about how your donation will be used.
Visit the Government of Canada’s Charities webpage to find out if a charity is registered, revoked, annulled, suspended or penalized. You can also find a charity’s contact information, general activities and financial information.
Selecting the best platform for your situation or circumstances
Beyond the particular charity itself, what are your objectives in how you want to give? Keeping in mind that donors have unique circumstances, a combination of goals and that one size doesn’t fit all, below are some options to consider:
- A private foundation
- A donor advised fund
- Securities, including mutual funds
- Life insurance policy
- Inter-vivos trust
- Testamentary trusts and bequests
- Endowment fund
You’re looking to create a legacy…
A private foundation
Family members can make up the group of donors that set up and control a private foundation. It is a legal structure that usually takes the form of a corporation or trust. As a registered charity, a private foundation is exempt from paying income tax; furthermore, it can provide its donors with a charitable tax credit for their contributions.
For more information on Private Foundations, contact your Richardson Wealth Investment Advisor for an education article.
…Or a legacy without the operating expenses and administrative costs
A donor advised fund
This is similar to a private charitable foundation but with significantly less cost and complexity. By establishing a Donor Advised Fund with a registered public foundation like BenefAction, you can name your foundation whatever you wish and manage all your charitable donations through one vehicle tailored to reflect your philanthropic goals and values. In simple terms, you can make irrevocable gifts – cash, securities, insurance, real estate, even private co. shares – to the fund. In exchange, you assume the role of advisor on the fund. First you decide on how the fund is initially invested and then you can recommend grants to your favourite charities.
Learn more about donor advised funds.
You want to maximize the impact of your giving while making it more tax efficient
Securities, including mutual funds
Gifts of securities listed on a prescribed public exchange, as well as bonds, mutual fund units and shares, can be a strategic way to give. If the securities have gone up in value, capital gains tax does not apply to the securities you donate and you get a charitable tax credit equal to the fair market value on the day ownership is transferred (typically the asset’s closing price).
Your children are grown, or you don’t have heirs
Life insurance policy
Perhaps you’re older, comfortably well off and no longer have the need for life insurance because your children are older and self-sufficient; or you don’t have heirs. One option is to donate your insurance to a charity that will accept it. Through the gift, you can receive a charitable tax credit that may minimize personal taxes as well as help support the cause. You can either assign the charity as the beneficiary or alternatively, you can keep the policy and continue to pay premiums and designate one or more charities as beneficiaries. Upon death, the estate would receive a tax credit based on the gift’s amount.
You prefer to wait and give ‘from the grave’
Testamentary trusts and bequests
These are charitable gifts left in your will that go into effect upon your death. Your estate receives a charitable tax credit that can be used to offset some of the income tax incurred by the deceased.
You wish to create a permanent and reliable source of income to your charity
Endowments may be an ideal gift to keep your vision alive long after you have passed away and pay lasting tribute to your passions or beliefs. These funds provide ongoing support to charities in perpetuity. The capital remains untouched, while the income generated is used to finance ongoing programs and services. Naming privileges will associate you and your family with the endowment.
Ready to start? Work with an Investment Advisor
This will ensure your charitable giving is incorporated into your financial or estate plan. While you should consider your interests and which organizations align with your values and priorities, your Advisor can outline the best options to ensure you don’t deplete your personal financial resources and that your charitable giving is focused, strategic and tax efficient.
Talk to a Richardson Wealth Investment Advisor about a plan and read our Guide to Charitable Giving.