Canada basically has six legacy giving vehicles: bequests, insurance, stocks & securities, RRSP’s & RIFF’s, gift annuities, and charitable remainder trusts.

Most of the information on these vehicles is a matter of public record however, in this article, references to numerous experts in the field for specific definitions will be made. The various assets which Canadians can give will also be discussed as will the vehicles available, and some of the tax implications of these gifts. 

Background

In 1997, Canadian tax laws changed and made it much more advantageous for people to direct all or some of their wealth, on their death to charities. In any given year, Canadians can gift up to 75 percent of their income to charity, and in the year of death, it increases to 100 percent. 

Further to that, in 2006, Revenue Canada again changed the tax laws and alleviated the tax paid on capital gains when gifts of stocks and securities are made.  In 1997 it had been lowered to 50% but was again reduced in 2006.  This can be particularly advantageous to older donors who have stocks that have significantly appreciated in value.   

Some of the assets deemed acceptable as a charitable gift are: cash, listed securities such as stocks, bonds, treasury bills, warrants and futures traded on approved stock exchanges, and mutual funds. Real estate is another asset that is often gifted, as well as gifts of tangible personal property such as art, books, furniture, and collections. 

One asset of particular interest is gifts of certified cultural property for which the Canadian Cultural Property Export Review Board has issued certificates. These assets are exempt from capital gains taxes in order to encourage Canadians to donate culturally significant Canadian items and property to designated institutions to preserve our Canadian culture (Gray & Budd, 2002). This is not an inclusive list but does identify the most commonly gifted assets. 

Types of legacy gifts 

The tools of planned giving normally include: bequests, annuities, life insurance, and gifts of residual interest and charitable remainder trusts (often funded by the assets listed above). Life insurance is an anomaly in that it is often considered an asset, but can also be used as a planned giving tool. 

Bequests

Bequests are probably the most commonly known and utilized legacy gift vehicle. A bequest is a testamentary gift of assets other than real estate given through a will.  Individuals giving gifts need to use the legal name of the charity they want the gift to go to and provide the specific amount of the gift or formula to determine the gift amount. Clarity is needed so that the amount of the charitable receipt can be determined, and the gift goes to the intended charity. 

There are three types of bequests: a specific bequest (a gift of a particular piece of property), a residual bequest (a gift of all or a fraction of whatever remains), and a contingent bequest that takes effect only if the primary intention cannot be met.[1]  

Some of the considerations of a testamentary gift through a bequest is that individuals can realize a 100 percent charitable receipt for these gifts, it can be easily added to the will with a simple codicil and can be changed. Note however that probate fees will apply and there is no confidentiality with this type of gift. [2]

Annuities 

Annuities can be defined as “an arrangement under which a donor transfers a certain sum to a charity and in exchange receives fixed guaranteed payments for the life of the donor and/or alternate for a term of years.” This vehicle gives the “annuitant” or “beneficiary” a guaranteed stream of income for a specified term, or in most instances, the remainder of their life or lives in the case of joint and survivorship annuities. With this type of vehicle, the charity hopes to realize a substantial portion of the original asset and the annuitant often hopes to increase their income stream on their current investments while making a charitable donation.[3]

A donation receipt may be issued for the amount the contribution exceeds the expected return.  Because the income the annuitant receives is a return of their original assets, a portion of that income is tax-free. The total expected return is determined by the amount of the annual payment, multiplied by the life expectancy or the term of the annuity. 

Not all charities are interested in offering annuities because of the complexity of administering them and the belated benefit to the charity. Therefore, most annuities are set up and administered by insurance companies. Gift annuities appeal to a charity’s oldest donors because this usually gives them an increased and guaranteed income stream. 

Annuities however are falling out of favour with many prospective donors because of the advent of various trust vehicles that produce similar results, but are more flexible in management and control.  A drop in interest rates over the last few decades has also made them less attractive as payout amounts are not what they used to be. 

Gifts-in-Kind

Gifts-in-kind in this instance refer to tangible property including works of art, books, real estate, equipment, collections—virtually any physical object in your possession. 

Donation receipts are issued for the fair market value and may significantly reduce your taxes.  Fair market value is normally the highest price, expressed in dollars that the “property” would bring in an open and unrestricted market, between a willing buyer and a willing seller who are knowledgeable, informed, and prudent, and who are acting independently of each other.  

Generally, if the fair market value of the property is less than $1,000, a member of the registered charity, or another individual, with sufficient knowledge of the property may determine its value.  The person who determines the fair market value of the item should be competent and qualified to evaluate the particular property being donated.

If the fair market value is expected to be more than $1,000, the property will be professionally appraised by a third party (that is, someone who is not associated with either the donor or the charity).  If the property is appraised, the name and address of the appraiser must be included on the official donation receipt.

In Part 2: Charitable Remainder Trusts, Gifts of Residual Property, Life Insurance, Stocks & Shares, RRSP’s and RIFF’s

Michelle Harder has over 25 years of experience in fundraising and non-profit development as a consultant and as part of an executive team. With a Master of Arts degree in Philanthropy & Development from Saint Mary’s University in Minnesota, Michelle has both theoretical and practical experience in fundraising. With a focus on small shop and faith-based fundraising, Michelle is driven by a passion to help organizations achieve their fundraising and strategic goals.  As a consultant, public speaker, and author of The Definitive Guide to Faith-based Fund Development, Michelle has the expertise to help you raise the funds you need.