Planned Charitable Giving
Canadians’ interest in planned giving has grown steadily. This interest can be attributed to the growing wealth of Canadians, a decrease in public funding to charitable organizations, and a wish to support the services that such organizations provide. A corollary of this increased interest is the need for more information regarding planned giving. The following illustrates the benefits, practicalities, and issues surrounding planned charitable giving from a legal viewpoint.
WHAT IS PLANNED CHARITABLE GIVING?
Planned or charitable giving is the deliberate arranging of gifts to charitable organizations, maximizing a donor’s personal, financial and tax situation. Planned gifts may be made during the donor’s lifetime (an inter vivos gift) or by the donor’s will (a testamentary gift).
BENEFITS OF PLANNED GIVING
Two primary benefits are associated with planned giving. The first is that the donor contributes to a charity he or she believes will help give back to society. The second is the possibility of significant tax savings.
In addition to the benefits of charitable gifting, generally, there are additional advantages in making those gifts through one’s will. As the gifting does not occur until one’s death, it will not affect that individual’s present worth and current lifestyle. The gift will remain revocable, allowing one to change the terms of a gift should circumstances change. Unlike an inter vivos gift, there is no donation limit (the maximum percentage of taxable income for a year against which a donation credit can be applied) for a gift made though one’s will.
Significant potential tax saving benefits can be reaped through planned giving. A charitable gift payable on the death of the donor is deemed made in the donor’s year of death. The contribution limit in the year of death is set at 100 per cent of the donor’s year of death net income. As such, a charitable gift can be used to offset any income tax that would have been payable in the donor’s terminal year, and any amount not used may be carried back to the preceding year.
TYPES OF GIFTS
A number of different types of gifts may be gifted to charity. While the majority of gifts to charities are cash, non-cash gifts may also be donated. Non-cash gifts may include securities, real estate and art. Each type of gift has a unique legal, tax and practical consequences and, therefore, has its own advantages and disadvantages for the donor and charity. Given these differences, it is wise to seek the expertise of a professional advisor when determining the best way to make a gift.
When donating a charitable gift, there are a number of considerations to discuss with a professional advisor. A good starting point is to confirm the name of the charity one hopes to benefit is the correct legal name. Should the charity be named incorrectly in the will, it may be necessary for a court application to make sure that the correct charity receives the gift. As charitable organizations can and do change names, from time to time, a legal advisor should include a clause in the will that recognizes such a possibility.
Another consideration is the possibility of a wills variation claim under the Wills, Estates and Succession Act. A spouse or child of a deceased can challenge a will, if a testator dies without making adequate provision for them. A charitable gift is not immune to a wills variation claim. It is therefore prudent, particularly when one wishes to make a substantial gift to a charity that the effect of the wills variation provisions of the Wills, Estates and Succession Act are discussed with one’s professional advisors to ensure for the greatest likelihood that wishes are carried out.
Individuals making or amending their wills should consider whether planned giving makes sense as part of their estate plan. Consult with legal and accounting professionals to best ensure that terms of any gift are optimized for both the donor and the charity.
This article is informational only. For advice on your specific situation, we would be pleased to assist.