Golden Girl Finance
 
Nicola Elkins
Posts (3)
 
 

Ask the Expert

Q&A: What is the most effective way to donate large sums of money?

November 23rd, 2010 by
 

I have been fortunate in my life to build some wealth and would like to make a significant charitable donation before the end of the year. What is the most effective way to donate sums near or in the 6 figures?

Asked by Anonymous, Montreal, QC

 

As the year end approaches, many people are thinking about giving donations whether at the door, online or by credit card. When you give, you get a donation receipt for the value of your gift. You can then use that receipt to claim a tax credit. However, if you are the owner of appreciated securities, consider giving those first, especially when donating as large a sum as you mentioned. Not only will you get the tax credit, you will eliminate any capital gains owing on the sale of those assets. But remember, to receive this additional tax credit, the charity must receive the securities in-kind. Do NOT sell the securities and then transfer the cash, as this will trigger the capital gain.

Here is an example comparing giving cash versus giving securities:

Susan lives in Manitoba. She contributes some of her Royal Bank stock to the United Way (a public charity). Her Royal Bank stock has a current market value of $100,000 and a cost base of $10,000 (what she originally invested), giving her an unrealized capital gain of $90,000. Her net income is $160,000 per year, and her other charitable gifts exceed $200.

The maximum contribution Susan can claim in the year of the gift would be: Net income from all sources of $160,000 x 75% = $120,000.

  Donate Cash Donate Stock In-Kind
Capital gain $90,000 $90,000
Taxable gain (50%) $45,000 0
Tax on gain (46.4% x $45,000) $20,880 0
Donation receipt $100,000 $100,000
Donation tax credit (assuming combined rate of 46.4%) $46,400 $46,400
Net tax savings (Tax CR - Tax on Gain) $25,520 $46,400
After tax cost of donating stock vs. cash (FMV - Net tax savings) $74,480 $53,600

 

The result: If Susan sold the stock, it would cost her $74,480 to make a $100,000 gift, but if she gives the stock in kind, she instead has a cost savings of $20,880 ($74,480 - $53,600). So Susan is well within her annual donation limit.

 

 

 

Ask the Expert

Q&A: How to establish a foundation in the name of your family

October 8th, 2010 by
 

My elderly mother is the process of redoing her will and at the same time, has been talking about establishing a foundation in the name of our family. Where do we start?

Asked by Barb, Oakville, ON

 

I am glad to hear that your mother is updating her will. It is really important that we all do that so that our current wishes will be followed when we are gone. In terms of establishing a family foundation, here are two routes you could consider...

1. Set up a private foundation

This is an effective route for those who want to maintain complete control over their activities, teach family members about the importance of philanthropy, or fund initiatives that are outside of the mainstream. However, it can be expensive and time consuming. And, with over 9,000 public and private foundations in place, it is likely that there is already a charity with a similar mandate so it is worth investigating this before committing to the set-up costs.

Private foundations are really most effective for sums over $5 million, assuming you are prepared to do the work required. If this is your choice, you'll need to establish a board of directors, decide on a corporate structure (trust or incorporation, national or provincial) and process the application. Then you'll need to apply for charitable registration with the Canada Revenue Agency. On an ongoing basis, you'll need to hold regular meetings, keep minutes, issue tax receipts, keep adequate books and records, report to the CRA, administer their grants and monitor their annual budget. Usually some professional staff is needed.

2. Establish a donor-advised fund (DAF)

For smaller amounts, an endowment/family or donor-advised fund with a public charity is a far simpler and more cost-effective solution. These family funds are really an investment fund set aside for the long-term support of a charity...only a percentage of the value is distributed to charity each year.

Donors who give through a DAF deal with just one charity, usually a public foundation. Families investing in donor advised-funds can realize many of the financial and personal advantages that come with establishing their own charitable foundation, with significantly less cost and complexity.

Other benefits include:

  • Tax savings - The family members that contribute to a fund will receive a donation receipt and can use that to claim a tax credit at their highest marginal tax rate. Also, if they gift appreciated securities, there will be no capital gains tax payable.
  • Control and flexibility - You can maintain control in terms of directing the donations to alternate charities.
  • Simplified administration - The sponsoring charity does the record-keeping and due diligence.
  • Identity protection - Unlike private foundations, a donor-advised program can protect a donor's identity if requested.
  • Investment management - Depending on the program, clients may be able to recommend to the sponsored charity on how it should invest the assets and use their own trusted investment advisors to oversee the funds.

Ask the Expert

Q&A: How to create a plan around your giving

September 21st, 2010 by
 

I am constantly being asked to make donations, but would like to create more of a plan around my giving. How do I do that?

Asked by J.C., Toronto, ON

 

Good question! Giving effectively - and sustainably - requires that you make a plan and then stick to it with informed choices. There is no right or wrong here. What is important is what matters to you. But you are more likely to succeed in achieving your charitable goals if you have a defined plan with specific objectives.

Start with your heart

The best place to begin is with some soul searching. Do an internal review of your values and the causes that are important to you and your family. Write them down. What are your priorities for giving? Consider some achievable objectives - specific goals that you want to reach with your giving. Ask yourself some questions:

  • Are you keen on creating something you can get your family involved in?
  • Do you want to leave a lasting legacy, support your religious beliefs, set an example for others, reciprocate for a good deed done for you, or meet some critical need of society?

Choose your cause

Once you have a strategy in place, you need to choose specific charities to support, but with over 161,000 not-for-profits in Canada, it isn't that easy. Do your homework. Your giving is only as effective as the charities you are donating to. What organizations are doing work in your chosen area? Which ones are the most closely aligned with your chosen priorities? Talk to the charities directly and ask yourself:

  • Does this organization clearly articulate its purpose and mandate?
  • What is its plan to address the problem it is seeking to solve?
  • Is there evidence that they have developed programs that have achieved meaningful results?

Determine your surplus wealth

Having defined your strategy and the charities you will support, you need to think about how and how much to give. The first priority is to look back to your own financial plan. Are you OK? Do you have enough to cover expenses throughout your lifetime? Your financial advisor will be able to help you with this. The next priority becomes your family - are they OK? This is the stage where you will be reviewing your estate, ensuring that its assets are protected from tax as much as possible and that it is passing to the next generation. If you are a business owner, your exit plan and business succession plan should be considered. Only after you have identified what your surplus wealth is, can you ask the next question - is my community OK? This is the stage which we call 'social capital' - where your surplus wealth, as well as your time, can be used to benefit your community, your faith or any other cause that is close to your heart.

To learn more, you might want to consider my book, 'Master Your Philanthropy'.

Wishing you well as you embark on your planned giving!