Planned Giving
Making Strategic Use of Tax Rules
James Dunne DMS, CIM
Wealth Advisor james_dunne@scotiamcleod.com 416-355-6345
Frédéric Bendahan
Wealth Advisor frederic_bendahan@scotiamcleod.com 514-287-3679
What is Planned Giving?
• “Gift Planning is the donor-centered process of planning
charitable gifts, that meets philanthropic goals and balances personal, family, and tax considerations.”
• A planned giving professional could be a fundraiser who
specializes in planned gifts, an estate lawyer, accountant, financial advisor, or insurance advisor.
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Who Makes Planned Gifts?
Business Owners/Entrepreneurs Retirees Philanthropists Social Entrepreneurs
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Planned Giving Vehicles
• Cash Gifts
• Will Bequests
• RRSP/RRIFs • Securities/Real Estate
• Life Insurance
• Charitable Insured Annuities • Charitable Remainder Trusts
• Private Foundations
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Cash Gift
• Can write off up to 20% of income • To determine tax deduction, multiply donation amount by
marginal tax rate
• Best Suited: anyone who wants to make a gift to charity • Benefits to Charity:
•
• •
Immediate Use
Liquid No Risk
• Benefits to Donor:
• •
Gift Receipt for full amount See your gift at work immediately today
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Will Bequest
• Can write off up to 100% of taxes due at death
• Ability to leave a residual donation to charity
• Best Suited: anyone who desires a simple low cost planned
gift and who desires to use their assets during their lifetime
• Benefits to Charity: a future gift provided Will is not changed • Benefits to Donor:
• •
Other than small legal cost (to draft a Will), no cost to donor during lifetime Ability to leave large gift to charity and reduce estate taxes
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RRSP/RRIF
• Can write off up to 100% of estate taxes • Avoids collapsing RRSP/RRIF and paying tax • Entire value flows to charity, estate receives receipt for market
value of account
• Best Suited: donors who do not have a spouse, donors who
want to avoid probate
• Benefits to Donor:
• • •
Revocable Avoids probate
No administrative costs
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Securities/ Real Estate
• Capital gains tax is eliminated with gifts of public securities
• Donor receives tax receipt equal to the market value of
securities
• Best Suited: donors with appreciated stock options and/or
appreciated securities who want to eliminate capital gains tax
• Charitable tax receipt equals market value of real estate (must
be appraised)
• Donating real estate to decrease capital gains tax, can be
used in conjunction with family foundation
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Life Insurance
• Can be revocable or irrevocable • Immediate tax receipt for paid up value of donated policy • Ongoing premium payments are tax deductible when policy is
owned by charity
• Can be used in conjunction with an estate plan to amplify
charitable donation from estate and further reduce taxes
• Guarantees a future endowment • Best Suited: any donor who wants to create a planned
endowment and/or reduce taxes
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Charitable Insured Annuity
• Also called “back-to-back”
• Combines life insurance and life annuity
• Maximizes after-tax income for seniors • Best Suited: seniors holding non-registered fixed income
investments such as GICs and government bonds
• Yield can be more than 3 times higher compared to GICs and
government bonds
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Charitable Remainder Trust
• Immediate gift when trust is settled (created)
• Donor receives tax receipt equal to slightly less than the
market value of the assets placed in trust (according to a CRA
formula)
• Trust is irrevocable and capital cannot be removed
• Donor retains the right to use the benefits of trust assets
including securities and real estate
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Private Foundation
• Capital gifts or regular donations • Disbursement Quota
• •
3.5% of capital 80% of regular donations
• Capital grows tax free inside foundation
• All-in operating expenses from 0.5% to 1.50%
• Donations are tax deductible • Donor Advised Funds (over 10K minimum)
• Aqueduct (over 250K)
• Private foundation (over 500K)
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Case Study: Single Senior
Before
•75 year old widow •30% tax rate •Good health •Children are grown up with successful families •$500,000 RRIF •$500,000 house •$250,000 GICs (at 3%) •$250,000 non-registered stocks and bonds
After
•Create a family foundation •Designate family foundation as RRIF beneficiary •Buy charitable insured annuities with GICs
Income
QPP & OAS Employment Pension RRIF Payments Annuity Payments Total After Tax $25,000 $25,000 $33,300 $16,350 $99,650 $74,660
Income
QPP & OAS Employment Pension RRIF Payments GIC Interest Total After Tax $25,000 $25,000 $33,300 $7,500 $90,800 $63,350
•Increased after-tax income by 17.5% ($11,310)
•Probate fees are only remaining taxes due upon death •Final value of foundation = $750,000 •Estate to children = $750,000 •Foundation gives $26,250 to charity on year 1
Over $230,000 in taxes due at death Final estate value = $1,270,000
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Questions?
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