Some people in Calgary are concerned about leaving a meaningful and lasting legacy to their communities or society in general after they are gone.
One way to do this is through charitable giving of assets: providing a donation to a charitable organization.
If you decide on making a charitable donation, you will need to consider how best to do this. There are other options besides making a cash donation. Each option has associated tax implications, and it makes sense to do it within the context of a responsible estate plan.
The team at Vest Estate Lawyers can help you understand your charitable giving options and how best to leave your legacy.
Charitable giving: What is a gift?
A gift is generally considered to be a voluntary transfer of money or property for which the donor expects and receives nothing in return.
This may be a one-time donation or an ongoing series of payments. The gift may be given instantly or be deferred and triggered at a later date.
For most people, a gift takes one of the following forms:
- Cash: this is self-explanatory
- Gifts-in-kind: securities (stocks, bonds and mutual funds, real estate, etc.)
- A right to future payment: for example, life insurance proceeds
These options are discussed in more detail below. Several other forms of gifts are less common but equally as valid, including:
- Certified cultural property: a special category for significant works of art and artifacts usually given to museums
- Gifts of ecologically sensitive land: made to the nation of Canada or one of its provinces, territories, or municipalities
It is worth noting also that time or services provided for the benefit of charitable organizations and property of little value (e.g., old furnishings) are not considered gifts.
What is considered a charity in Alberta?
Around 85,0000 charities are registered and permitted to issue tax receipts in Canada. These include:
- Canadian registered charities that perform charitable activities
- Public and private foundations that fund the work of others
- Registered amateur athletic associations
- Governments and government agencies in Canada
- Registered national arts service organizations
- The United Nations and its agencies
- Foreign charities
- Foreign universities
- U.S. charities
How do you integrate charitable giving into your estate plan?
While the main intention of making a charitable gift may be a generous one – to positively impact the community or a particular cause that is dear to your heart – it also makes sense to create a tax-effective estate plan.
Gifts can take many forms (explored below), each with its own benefits. Charitable giving can be included in a will. Alternatively, for additional tax benefits, it can be made while you are still living.
Nobody knows how long they will live. So, before you commit to making a charitable gift, consider your age and the resources you may need to continue your lifestyle and meet family obligations until you die.
Look to build some flexibility into your estate plan. Some people make a charitable donation of a fixed cash amount in their will according to their financial situation at the time. Then, 10 or 20 years later, when the estate is administered, the executor discovers a very different financial situation and a lack of liquidity to fulfill the donation.
By donating life insurance rather than a fixed cash amount, this possible scenario can be avoided. However, your precise circumstances will dictate which gift option is best suited to your needs.
Two main options for charitable gifts
For most people, there are two main options for making charitable gifts within an estate plan:
Cash remains one of the most popular ways to donate to charities, from a small donation made to a door-to-door collector to a large cheque made from one’s estate. Making a cash donation from your estate to a registered charity is generally a fairly simple process.
This is a donation of tangible property rather than cash. Usually, it involves publicly traded securities such as stocks, bonds, mutual funds or segregated funds but could also relate to real estate or life insurance. While cash is more common, charities are generally accustomed to receiving gifts of securities and are well-equipped to process such transactions.
There may be capital gains tax benefits and greater flexibility if you decide to provide a gift-in-kind rather than cash.
The suitability of these options – or another less commonly used option – can best be determined during discussions with one of our estate planning lawyers. Whatever you decide, it’s best to revisit your estate plan every few years to ensure that it still reflects your financial position and life circumstances.
If not, you may need to make amendments to your will and other estate planning documents.
What are the tax benefits from charitable donations in Alberta?
Even though tax laws have been tightened in the past decade or so, donating part of your estate can still have significant tax benefits.
With a little planning, tax savings can fund 40 percent or more of your charitable giving.
Is there a tax benefit limit?
For most people, up to 75 percent of your net income (as reported on your tax return) can be claimed as eligible charitable donations. In the year of death, up to 100 percent of your net income can be claimed.
The surviving spouse may be able to claim the tax credit for these donations against up to 75 percent of his or her net income. This arrangement can provide the peace of mind of knowing that you are protecting your spouse’s interests while also supporting a good cause.
Additional tax savings may also apply, especially if the donation involves securities such as bonds or stocks. This is generally more tax-efficient than donating cash as it eliminates capital gains tax.
You will receive a charitable donation receipt for the fair market value of shares/property, making it a mutually beneficial arrangement for your estate and the charity.
What if you exceed the limits?
If your total charitable donations and gifts exceed the 75 percent limit, the excess can be claimed over the next five years (though each year the 75 percent limit remains in place).
This makes it possible to make a large donation now and claim the full credit over subsequent years.
Remember, if you receive something of value in return for your “gift”, a portion of the “gift” may not be eligible for a tax benefit. You cannot, for instance, provide a gift to a charity in return for free advertising and expect a deduction.
Guidance on charitable giving in Calgary
Charitable giving is just one aspect of managing your assets and creating an effective estate plan.
A lawyer from Vest Estate Lawyers can help you select the right option for charitable giving within the wider framework of your estate plan. This will help you create a secure financial picture now and in your retirement years as well as for your loved ones after you die.
Start with a confidential one-on-one consultation, during which we will listen to your goals and advise you of your options.