When you’re confident you have provided financially for yourself and your loved ones, you may begin thinking about helping others through charitable giving. If you’re making a significant donation, you’ll find there’s a wide variety of ways to give. And it’s your personal wishes and financial situation that point to the donation methods that suit you best.
Wishing to experience the giving. Instead of giving through a will, many people feel a greater satisfaction from giving during their lifetime and staying informed of the charity’s work. For an even greater sense of involvement, some organizations enable a donation to be designated toward a specific purpose. Methods to give while living include cash, donor-advised funds, and securities or mutual funds.
Thinking about longevity. Some people want to make a significant gift but are concerned about supporting their retirement lifestyle if they live to a very old age. Solutions include leaving a bequest through a will or combining a gift with retirement income through a charitable remainder trust or charitable gift annuity.
Timing the tax relief. If you base your giving strategy entirely on gaining the most tax relief, you would usually choose a method that takes effect on your passing, benefitting your estate. Up to 100% of a taxpayer's net income can be claimed as donations in the year of passing and the preceding year, compared with up to 75% of net income during a taxpayer’s lifetime. However, occasions may arise when giving while living becomes the tax-smart choice – such as a year you sell property or your business and want to reduce your tax bill.
Immediate tax relief is provided by gifts of cash, donor-advised funds, charitable gift annuities and charitable remainder trusts. Tax relief to the estate is provided by bequests through a will and donations using registered accounts. Life insurance, securities and mutual funds can provide either immediate tax relief or tax relief to the estate.
Looking for greater value. Some donors may be considering a large cash donation but want to explore ways to make their money go further. One way is giving appreciated securities or mutual funds, as the tax you would normally pay on capital gains is eliminated. Giving a life insurance policy can also add value, as the total cost of premiums you pay can be less than the insurance proceeds the charity receives.
Holding a large RRSP or RRIF balance. If you’re left with significant assets in your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), those assets could represent your estate’s largest tax liability. However, by designating a charity as beneficiary of the RRSP or RRIF, the estate receives a donation tax credit that can potentially eliminate the tax payable on the RRSP or RRIF.
Talk to your advisor when you’re thinking about charitable giving, so they can help you choose the planned giving method that best suits your personal situation.