Planned Giving: Donating to Charity – Efficiently
Why do we give to charity? As a financial planner, this comes up often with my clients. The prospect of having a positive impact on our communities, giving back to those organizations who have made a difference in our lives, and “paying it forward” are themes I hear often. My role is to help my clients donate as efficiently as possible.
While most of us are aware that there are tax benefits available when we make a donation to a registered charity, we may not be fully aware of how best to structure these donations. For example, a donation provides a non-refundable tax credit which reduces the tax we pay. As such, it may be a good idea to combine your donations with your spouse, having the higher income spouse claim the total amount to maximize savings.
Most of us are also aware that we pay tax on the amounts we withdraw from our RRSPs orRRIFs and from our nonregistered investments that have increased in value. However, did you know that these funds are subject to tax when both spouses pass away? One simple strategy is to make a bequest in your will. The donation credit can offset some or all of the taxes owing. Consider the following example. Bill lost his wife, Helen, about 15 years ago.
He has an RRSP worth approximately $300,000 and a nonregistered GIC worth $100,000. He wants to leave his assets to his three children and make a charitable donation in memory of Helen. For simplicity, let’s assume that there are no withdrawals and no investment growth. Upon Bill’s death, assuming a 46% marginal tax rate, there would be tax owing of $138,000 on his RRSP, leaving the children with $262,000 (the residual value of the RRSP, $162,000, plus the $100,000 GIC) and no charitable donation.
Alternatively, Bill could bequest $50,000 (half of the GIC) to his charity through his will. Upon his death, the donation credit would reduce the tax owing on the RRSP from $138,000 to
$115,000, providing the children with $235,000 (the residual value of the RRSP, $185,000, plus the remaining GIC, $50,000), while donating $50,000 to charity, and reducing the tax payable by approximately $23,000.
Ultimately, Bill is able to provide for his children, make a significant charitable donation in memory of his wife and reduce the taxes owing upon his death.
While these concepts can be very effective they can also be very complex. Please exercise caution and seek professional advice before acting on any of these strategies.
Damian Borges, CFP, CLU, CH.F.C., works with Canfin Financial Group in the Greater Toronto Area. Damian is a member of Wellspring’s Planned Giving Advisory Committee. He can be reached by e-mail at firstname.lastname@example.org.
No matter how small or big, your gift is vital to Wellspring. By planning now, you give yourself and your loved ones peace of mind. Moreover, your legacy gift will make a tremendous impact on Wellspring members today and tomorrow.
If you plan to include Wellspring in your will, our legal name is: Wellspring Cancer Support Foundation.
Our Charitable Registration Number: 89272 8940 RR0001
For more information on Wellspring’s Planned Giving Program, please contact Anna Bernardi, Associate Director, Major Gifts at 416-480-4440 x 268 or email her at Anna@wellspring.ca.