How to LEAVE A LEGACY™
There are many ways to leave a gift to a not-for-profit or charity that has touched your life. Some of these planned giving vehicles include:
- Leave a Gift in your Will
- Gifts of Life Insurance
- Gifts of RRSPs or RRIFs
- Gifts of Charitable Remainder Trusts
- Gifts of Securitis
- Gifts of Property
The Benefits of Naming a Charity in your Will
Putting a charity in your Will is the simplest way that you can leave a charitable legacy. With a charitable beneficiary, you will be remembered after your death for the values that you held dear during your lifetime. You will feel good now knowing that you will be making a significant and lasting difference to causes that you care about.
Your charitable gift(s) can be in the form of a fixed amount or it can be a percentage of what is left after tax and other costs have been paid. If your beneficiary is a registered charity, your estate will receive a charitable gift receipt in the amount of your gift which will offset taxes owing on your estate. The charitable tax receipt can be applied up to 100% in the year of death and in addition, carried back one year. You may feel concern that heirs will receive less if charity is named in a Will. Your family and others who depend on you should always come first. However, because tax is almost always owing in an estate, through income and/or capital gain, a charitable receipt can offset tax owing and quite simply re-direct some or all of the money in the estate that would go to tax.
Your advisor(s) can help you to decide if this is best for you. It is recommended when drawing up your Will, that you consult a legal advisor who can ensure your final wishes are met. As well, it is recommended that you consult
with family members so they are involved in your legacy decisions. There are many ways to leave a gift to a not-for-profit or charity that has touched your life.
The Amazing Benefits of a Gift of Life Insurance
One potential application of life insurance is through full paid up policies. If you have a fully paid up life insurance policy that has value but is no longer needed, you can realize a charitable receipt in the fair market value of the policy that can be applied for current tax relief. Life insurance can be powerful ally in increasing the amount of the value of an estate. Through a series of smaller payments during your lifetime, you can make a large charitable gift at the end of life. This is accomplished through the magic of leveraging. For new policies or those that are assigned before fully paid, tax benefits are available as follows:
a) If you name the charity as beneficiary and irrevocable owner of the policy, you will receive an annual tax receipt for the full value of your payments that can be applied against your present taxes. The charity receives the money for its charitable purposes on your death and there is no charitable receipt to your estate.
b) If you name the charity as beneficiary and continue to own the policy, your estate will benefit from the charitable receipt on the value received at death. A benefit to naming a charity directly on your policy is that there is no need for the gift to pass through probate. It passes outside your estate, thereby saving money in your estate and the gift is not subject to contest.
Life insurance can also be utilized as wealth replacement. For instance, you can replace the full value of a gift to charity in your estate by taking out a life insurance policy that will pay your estate that same value on your death. The charitable tax receipt received by our estate for the value of your charitable gift will reduce tax payable in your estate. In this way you can: make a significant charitable gift; reduce taxes payable in your estate; replace the amount of your charitable gift to your estate.
Gifts of Securities
Gifts of securities receive favorable tax treatment. In its 2006 budget, the Canadian federal government eliminated capital gains tax on listed stocks when transferred directly to registered charities. These can be in the form of publicly traded stocks in Canada and major international exchanges, mutual funds, bonds or futures.You will receive a charitable receipt for the market value of the securities, just as though you had donated cash.
When combined with the charitable receipt for the value of the securities, this provides a great deal of tax benefit to you, the donor, while giving support to the work of a charity that you value. If instead of cash, you transfer your shares now worth $20,000, directly to the charity, you will not have to pay tax on your gain. You will also receive a $20,000 charitable receipt to apply against your taxes.
Selling Shares vs. Donating Shares
This example is for illustration purposes only.
The tax impact will depend on individual donors´ circumstances.
*Donation tax credits may be carried forward for the next five years.
| |
Selling Shares on the Market & Donating Cash |
Donating Shares |
| Fair Market Value for shares |
$100,000 |
$100,000 |
| Cost of Shares |
$20,000 |
$20,000 |
| Capital Gains Released |
$80,000 |
$80,000 |
| Taxable Capital gain |
$40,000 (50%) |
$0 |
| Taxes payable (assume 46%) |
$18,400 |
$0 |
| Tax credit* (assume ONtario resident) |
$46,000 |
$46,000 |
| Net Tax Reduction |
$27,600 |
$46,000 |
Gift of Property
You can choose to make a gift of property outright; or you may irrevocably assign ownership and receive the tax benefits now while enjoying the use of the property for your lifetime. You will have the satisfaction of knowing that the sale of the property now or eventually, will provide funds to support the work of your charity.
Houses, cottages, commercial buildings and land, jewellery, antiques, art and vehicles are examples of personal property that can be used to make a signficant contribution. Because all property has a cash value, the donor is entitled to a tax receipt for the full market value of the property.
The Exemplary Benefits of RRSPs and RRIFs
Naming the charity of your choice the partial or full beneficiary of your RRSP or RRIF is one of the most tax effective ways to leave a legacy. This is because RRSPs and RRIFs are among the most highly taxed assets in your estate, hence the charitable tax receipt offsets any taxes owing against your estate. At death, RRSPs and RRIFs are treated as if they have been cashed all at once and are added to income in the year of death.
For example, this could mean that an income of $35,000 in the year of death could become an income of $135,000, if there is $100,000 in RRSP or RRIF income added. The income would be taxed at the highest tax level, in many cases, directing approximately half the RRSP or RRIF to taxation. A charitable receipt can be applied up to 100% in the year of death and in addition, can be carried back one year.
Charitable Remainder Trusts
A Charitable Remainder Trust provides you with income for life and after your lifetime, the assets pass to the charity for charitable work. You receive immediate tax relief in that a charitable receipt for the remainder of the full market value is provided at the time that the trust is established. A trust can also be set up to provide income for a surviving spouse or other family member. In that case, the assets would pass to the charity only after both spouses have died. A charitable remainder trust can be funded with cash, securities or real estate.
Charitable remainder trusts are irrevocable gifts. The donor is most times entitled to a charitable receipt at the time that the trust is created, giving tax relief during the donor’s lifetime. The receipt amount is based on the present value of the remainder interest determined by the remainder of the fair market value of the assets. The charitable tax receipt is often within a range of 20-60% of the value of the assets.
Benefits include:
- a steady income and immediate tax benefits
- expert financial management
- allows you to make a significant gift
- avoids probate
