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.
Read Part 1 (Bequests, Annuities and Gifts-In-Kind) here.
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 here). Life insurance is an anomaly as it is often considered an asset, but can also be used as a planned giving tool. It will be discussed in Part 3 of this series.
Charitable Remainder Trusts
A charitable remainder trust can be appealing for the options and advantages it can offer. Broadly defined, it is any “trust, inter vivos or testamentary, where all or a portion of the remaining trust assets are distributed to a charity at the termination of the trust.” This type of trust can be funded with cash, securities, or real estate and enables individuals to meet a wide range of personal intentions and realize philanthropic goals as well.
A donor who wishes to provide an income stream or manage assets for loved ones while making a significant gift to a favourite charity will often establish a charitable remainder trust. Thus, some of the more common trusts are spousal trusts and trusts for children, either testamentary or inter vivos, with unique tax consequences.
In order for any trust to qualify for a donation receipt, these five conditions must apply:
The determination of the amount of the tax receipt for the present value for the residual interest takes into account the fair market value of the property, the life expectancy of the income beneficiaries and an appropriate discount rate.
One of the advantages of a trust is that it can provide (often-desired) privacy for the donor and the beneficiaries because trust assets are not a matter of public record. Another advantage is that it can provide one party with the use of an asset, while leaving the asset to someone else upon death. Another advantage to using a trust is the avoidance of paying probate fees.
Gifts of residual interest
A gift of residual interest is when a donor gives title of tangible property to the charity, but retains the right to use it during their lifetime or for a term of years. The charitable remainder trust is similar in that the donor gives a future interest but retains a present interest. Tangible property in this case is most often real estate, collections of art, antiques, or other valuables. This vehicle allows the donor to gift an asset, receive an immediate tax receipt, and retain use of the asset.
Like the charitable remainder trust, the donation receipt is calculated by the value of the property, the life expectancy of the beneficiary/donor, and the applicable discount rate. Also like the charitable remainder trust, the amount of the capital gain recognized when the gift is completed depends on who is named as the beneficiary.
Stocks & Shares
There is a real advantage to making a gift of shares to your favourite charity. The most significant benefit is there are no capital gains taxes. When considering this type of gift as a bequest your estate receives a charitable tax receipt for the fair market value of the shares (at the time they are received) and your estate is not required to declare any resulting capital gains on income. Win-win.
A donation receipt is issued for the fair market value of the security on the date the securities are received in the organization account. The securities must be transferred to the organization or church and not sold by the donor. It is important to note: the gift will not qualify for the capital gains tax elimination if the securities are sold and the cash then gifted to a charity.
RRSP’s and RIFF’s
By designating an organization or church as a beneficiary of RRSPs and RRIFs, the asset is transferred to the charity, and the estate receives a tax credit to offset the tax on income. Since the asset passes outside the estate, no probate fees are payable, which results in further savings to the estate.
There are two ways to donate the proceeds of an RRSP or RRIF:
1. The donor can name the organization as the direct beneficiary of their RRSP or RRIF. Upon death, the proceeds will be paid directly to the organization or church without going through probate.
2. The donor can name their estate as the beneficiary of their RRSP or RRIF and leave instructions in their Will to donate all (or part) of their RRSP or RRIF to the charity. The donor can specify a percentage of the RRSP or RRIF or a specific dollar amount to be donated. The donation qualifies for the charitable Will bequest donation tax credit for up to 100% of income in the year of death and in the year preceding. Note: The trustee of the donor’s RRSP or RRIF will withhold taxes and probate will apply when choosing this option.
Because retirement plan assets are one of the most heavily taxed estate assets to pass on to heirs, it can be very advantageous to gift these assets instead.
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,” soon to be released by Civil Sector Press, Michelle has the expertise to help you raise the funds you need.
