There is no better time than right now to consider how much charities and community organizations have given to you and your family over your lifetime. Whether you look at the societal benefits of cancer research or admire the volunteers who organized the local soccer league, community has played a big role in many people’s lives. Maybe now is the time to pay it forward for the next generation.
Research in the area of philanthropy has shown there are myriad reasons that people donate to worthy causes. For some, the sheer number of worthy causes can be overwhelming so stick to the one’s that have had direct meaning in your life. This way the choices become much more manageable when planning gifts by will or other means of charitable giving through the estate planning process. This is what charities call “planned or legacy giving”.
While there are many personal reasons for engaging in philanthropy there is one common thread in Canada that almost everyone can bank on and that is the concept of significant tax breaks for people who arrange charitable gifts in their estate plans. The caveat of successful planning is doing it in advance of your demise. You can’t leave it up to your executor or trustees if you want to make the most of tax breaks.
Nor do you want to assume that you are the best person to control how your legacy gifts will be used.
Clarence met Mildred a few years after she had graduated as a nurse from her Alma Mater. She always talked about how the school had found money for her when times were tight.
Mildred died suddenly, leaving Clarence to fend for himself on the farm after 40 years of marriage. He and Mildred had no children of their own but were well regarded in the community as generous and as willing volunteers. When Clarence sat down with his long time friend and lawyer to write his last will he wanted to arrange a significant gift to set up an endowment to provide a fund for nursing students at the University to memorialize Mildred. The donation would also offset most of the taxes otherwise owed by the estate. Clarence died thinking his affairs in order.
But Clarence did not know that the nursing program at the University had been cancelled more than 20 years ago. His lawyer did not confirm the purpose of the gift with a gift planner at the University when writing the will. It was possible that the gift would revert to the estate and completely udo the tax planning. Mildred’s memorial could fail because Clarence and his lawyer, for whatever reasons, had kept it too private.
A five-minute phone call between the Gift Planner and the lawyer when the will was being drafted would have been the smart thing to do. Surprise donations are not always a good idea.
When consulting with your lawyer about charitable giving make sure to tell her that you want her to consult with the charity in advance. Better yet do it yourself. You may be very pleasantly surprised to know the professional way you are dealt with and how thankful the charity is to know they can count on your support very long into the future. You won’t be flooded with unwanted mail and phone calls at dinner if you tell them.
There are several ways to support your favourite charities when you are planning your estate. The easiest and most common is the bequest that you arrange in your will. You can donate property of a specified amount or set percentage of your estate. Alternatively, you could arrange to share a portion of the residue after all other distributions have been made. These arrangements cost you nothing now but will eventually become wonderful legacies for the causes you care about.
Don’t be Clarence! Talk with a charity representative about your plans and tell them your expectations. If you are thinking about a gift that will set up a permanent fund, make sure that the organization has an endowment fund and that the purpose for the donation will have lasting qualities. Not all do. Include a “power to vary“ clause* so that in a hundred or two hundred years the money can still be put to good use. Endowments are permanent and generally speaking universities, hospitals, research institutes, and community foundations are among the few charities that actually have the capacity to manage funds in perpetuity.
Ask the charity to provide you with written assurances that the gift will be accepted for the purpose you intend. A simple MOU can give you great peace of mind and give the charity something wonderful to look forward to, hopefully long into the future. Charitable gifts must be accepted in order to complete the transfer of property and one cannot assume that all donations are wanted.
An in depth discussion of all the types of gift vehicles is beyond the scope of this article. Basically there are gifts that cost you nothing now, gifts that pay you income, gifts that pay the charity income and gifts that cost you little now but will provide a significant legacy in the future. Talk with a professional wealth and estate advisor and a charity representative who is specialized in planned giving. You’ll be glad you did.
Remember, you must plan in advance of your death to make the most of your planning and the tax benefits of strategic philanthropy. And please, talk about your hopes and dreams of a better world through charitable giving with your family. Let them know how important it is to you.
*“In the event that the original purpose for the [Named] endowment is no longer possible or practicable, the governing board of XYZ Organization is hereby authorized to vary the purpose of my gift to another purpose which is analogous to and reasonably consistent with the original purpose.”
Senior Consultant PGGrowth Consulting Inc.
Doug is a recognized expert in gift planning in Canada with over 30 years of fundraising success in higher education and environmental conservation. He believes that an honest and artful connection with donors and their advisors will result in joyful, effective giving to charity and maximized tax breaks.
Doug willingly shares his knowledge through his workshops and seminars on legacy giving. His well-researched presentations have been heard at CAGP, AFP, STEP & CASE conferences.