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Estate Planning and Charitable Giving

Integrating charitable giving into your estate plan can help more than your community. It carries tax benefits, such as reducing the income tax paid after death (yes, you have to pay taxes up to the date you pass away). There are also a number of other tax rules that favor charitable when estate planning. Talk to your financial planner and/or accountant to find out the most current tax rules.

There are several questions you should ask yourself when deciding on charitable giving within your estate plan. Remember, how you choose to give – and why – is up to you.

  1. What causes do you want to focus on? Why?

  2. Which charities are you interested in supporting? Why?

  3. How does your charitable gift fit with your overall estate plan?

  4. What are your financial resources?

  5. What are your anticipated financial needs for the rest of your life?

  6. What financial obligations must your estate satisfy when you pass away?

  7. Who are your beneficiaries and how much will they receive?

  8. How much will you be able to give, and meet your other estate-planning objectives?

  9. Have you spoken with a tax accountant or wills/estate lawyer about how to give to a charity?

Planned giving can take the form of giving cash or donating shares, securities, mutual funds or life insurance. When it comes to capturing your charitable intentions in an estate plan, the experts have a few recommendations:

  • Consider giving stocks, bonds, mutual funds, segregated funds or life insurance. Many people think of cash when it comes to planning bequests, but stocks, bonds or mutual funds in-kind to charity may be more efficient. Not only does this eliminate capital gains taxation, it also gives the estate a charitable donation receipt for the fair market value of the shares and depending on the situation, this could produce significant tax savings for an estate.

  • Build in flexibility for your executor. Sometimes, charitable gifts of a certain dollar figure are planned years ahead of a person’s death and reflect the financial situation of that person at the time of planning. Five or ten years later, the financial picture may have changed and the estate may not have the liquidity to satisfy the gift. It’s important to have the liquidity built into the estate to fulfill specific charitable obligations. Life insurance is one way to help ensure liquidity.

  • Revisit your estate plan on occasion. As with any good plan, regularly checking in is a good idea to capture any changes in personal circumstances or life events. Seeking professional advice can help you build a personalized estate plan that matches your charitable intentions and optimizes the tax impact.

The value of the non-refundable tax credit issued for a charitable donation depends on where a taxpayer lives, and her income in the year the donation is claimed. A donation amount of up to 75% of net income can be claimed in the year of donation, or carried forward up to five years (up to 10 years for ecologically sensitive land gifts). Donations can normally be claimed by either spouse. Speak to your tax accountant for the most current info on how to estimate the value of a donation.

To claim the tax credit, a donation must be made to a charity or other beneficiary that is registered with the Government of Canada and can issue official donation receipts. These organizations include charities, amateur athletic associations, arts organizations, municipalities and low-cost housing corporations for the aged, as well as the United Nations and certain foreign universities and charities.

Charitable donations that may qualify for advantageous tax treatment include not only cash, but also securities, employee stock options, debt obligations, mutual funds, real property, life insurance, RRSPs, RRIFs and even objects of cultural value.

Donations of real estate generally require a current assessment of fair market value at the time of donation. This may mean additional cost for the estate to obtain an up-to-date valuation.

If shares of specified publicly traded companies are donated directly to charity, the donor will receive a tax credit for their fair market value at the time of the share transfer. As well, the inclusion rate is reduced from 50% to zero on any capital gains realized on such gifts. This favorable tax treatment can provide significant tax relief.

A gift of Canadian cultural property of "outstanding significance and national importance" such as works of art and archival material may qualify for preferential tax treatment. There is a process for certifying cultural property for income-tax purposes. Speak to your tax accountant or estate planner or estate lawyer for more the most current info.

Donations of ecologically sensitive land for purposes of preservation could be eligible for tax credits and a capital-gains inclusion rate of zero. Unlike other charitable gifts, there is no limit to the gift amount eligible for the deduction or credit in a given year.

A life-insurance policy donated to charity will provide an immediate tax credit for the net cash-surrender value of the policy. Alternatively, a charity could be named the beneficiary of the policy, and the estate would claim the tax credit.

Review your estate plan if it predates 2016. The federal government revised the laws in 2016 regarding charitable donations made by an estate. Now, if an estate qualifies as a graduated rate estate, an entity which can exist for 36 months after death, the donation claim limit is 100% of net income in the year of death and the previous year. As well, the executor has more flexibility regarding the year in which a donation tax credit is claimed.

For more information, go to: CRA - Charities & Giving

Other estate-planning strategies that involve charitable giving include charitable insured annuities, charitable remainder trusts and donations through a community foundation. Setting up a private foundation for charitable giving is another possibility that suits larger donations ($500,000 or more).

Before pursuing any of these strategies, seek the advice of an appropriately qualified professional. When planning your estate, there is much to consider. With thorough research, careful consideration and the right professional advice, your estate plan can achieve all your estate-planning objectives, including philanthropy and tax benefits.

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