Take a proactive approach to make the most of your family’s charitable legacy
As Canadians, we support causes important to us in many ways, whether it’s by giving our time, expertise, or money. But charitable giving is something that we often leave until the last minute, or that we do only when asked. By taking a more thoughtful approach, you can support causes important to you and your family, maximize tax incentives, and create an enduring legacy.
Here are three ways to take a more planned approach to charitable giving:
1. Make giving part of your life through regular cash donations or donations of non-registered securities
Cash donations are the most common way to make an impact on the communities you care about, and it has never been easier. Many employers offer automatic payroll deductions and charitable organizations can set up pre-authorized debit options through your bank account or credit card. Not only does pre-planned giving help charities do their work; it also helps you plan your own monthly budget. And don’t forget, when donating to a registered charity, you will receive a tax donation receipt which can be claimed on your tax return as a credit.
Here’s another idea: If you are holding publicly traded securities (such as stocks) which have appreciated in value in your non-registered account (e.g., not held in an RRSP or RRIF) consider donating them “in-kind” to a charity. In return, you’ll get a tax receipt equal to the fair market value (FMV) of the securities donated, and you will not be taxed on the capital gains accrued on those securities, as you would if you sold the securities during your lifetime.
2. Arrange future gifts through your estate planning
Deciding how to distribute your estate in advance helps ensure your loved ones or important charities will be taken care of after your passing. There are many ways to achieve this goal, including:
- You can leave a set cash legacy, direct specific assets (publicly traded shares or land, for example) or bequeath a share of the residue of your estate to a charity or charities of your choosing. Outlining your charitable wishes through your Will has benefits. You can enjoy the use of your assets while you are alive, knowing that charities that are important to you will benefit in your Will.
- Your estate will also receive an enhanced donation tax credit. Generally, you cannot claim a credit for donations exceeding 75% of the net income reported on your federal tax return in any particular year. However, in the year of death and the preceding year, you may claim donations of up to 100% of your net income.
- Another way to provide a future gift, while benefiting from your assets during your lifetime, is by establishing a charitable remainder trust. You receive an immediate donation tax credit plus income from the trust throughout your lifetime. Upon your passing, the remainder of the assets in the trust will pass directly to the charity you name as the beneficiary (bypassing probate fees).
Here’s another tax-smart way to make a future gift to your chosen charity: Donate a life insurance policy. You can donate a new or existing policy to a charity during your lifetime and receive a tax credit you can use immediately. Alternatively, you can defer the donation until you pass away, in which case your estate receives the tax credit. Either way, your chosen charity receives the life insurance benefit directly on your passing. What’s more, it bypasses probate, which can reduce costs and maintain your privacy if desired.
3. Create a lasting legacy with a donor-advised fund
If you want to establish an ongoing charitable legacy, consider a donor-advised fund. A donor-advised fund is administered by a public foundation, and provides many of the same advantages as a private foundation, without the upfront costs, complexity and ongoing administration responsibilities. With a donor-advised fund, you contribute a certain amount, receive a donation tax credit, invest your contribution, and then make grants to registered charities of your choice. You can also name a fund successor, such as one of your estate beneficiaries, who can continue your legacy after your passing. If you don’t name a successor, the public foundation will continue to administer your fund and make grants consistent with your wishes.
So, whether you’re giving a little or a lot, there are many ways you can make a meaningful difference to causes close to your heart. Plus, you can take advantage of tax incentives to maximize your giving. To learn more, please contact your Investment Counsellor.
Past performance is not indicative of future results. Counsellor Quarterly has been prepared for use by RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC). The information in this document is based on data that we believe is accurate, but we do not represent that it is accurate or complete and it should not be relied upon as such. Persons or publications quoted do not necessarily represent the corporate opinion of RBC PH&N IC. This information is not investment advice and should only be used in conjunction with a discussion with your RBC PH&N IC Investment Counsellor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest information available. Neither RBC PH&N IC, nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. This document is for information purposes only and should not be construed as offering tax or legal advice. Individuals should consult with qualified tax and legal advisors before taking any action based upon the information contained in this document. Some of the products or services mentioned may not be available from RBC PH&N IC; however, they may be offered through RBC partners. Contact your Investment Counsellor if you would like a referral to one of our RBC partners that offers the products or services discussed. RBC PH&N IC, RBC Global Asset Management Inc., RBC Private Counsel (USA) Inc., Royal Trust Corporation of Canada, The Royal Trust Company, RBC Dominion Securities Inc. and Royal Bank of Canada are all separate corporate entities that are affiliated. Members of the RBC Wealth Management Services Team are employees of RBC Dominion Securities Inc. RBC PH&N IC is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. RBC, RBC Wealth Management and RBC Dominion Securities are registered trademarks of Royal Bank of Canada. Used under licence. © RBC Phillips, Hager & North Investment Counsel Inc. 2023. All rights reserved.