What does your charitable legacy look like?

Mar 14, 2020 | Investment, tax and lifestyle perspectives from RBC Wealth Management Services


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Options for planning ahead to create a charitable giving impact that lasts beyond your lifetime.

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For those who make charitable giving or philanthropy part of their lives, it can be quite a rewarding and meaningful experience. Whether it’s individually or collectively as a family, your journey with giving is something that’s unique—it’s shaped by how and when you choose to pursue it, your motivations or personal connections with causes or organizations, and how much time or focus you dedicate to charitable activities.

While everyone's personal experiences with giving are different and unique to them, a common aspect among the majority of Canadians is thinking of giving primarily in the context of during their lifetime.

Recent statistics are limited, but earlier research indicates that when it comes to leaving a charitable gift in a Will, this is something only approximately 5 percent of Canadians do.1 If you’re someone with charitable or philanthropic values and intentions, it’s important to consider how you may want that to be part of the legacy you leave and what the best approach is to achieve your charitable goals—now, throughout your life and for future generations.

Planning your approach

Structuring your giving, whether that’s during your lifetime, as part of estate and wealth transfer planning, or both, may offer a range of potential benefits, from tax efficiencies to making a more meaningful difference over time. There are a number of options for incorporating charitable giving into your overall plans, so it’s important to be proactive and give thought to how you’d like to build your legacy and what approach or approaches may be the most suitable for your goals and circumstances. 

As a starting point, consider how you currently include charitable giving in your life and compare that to how you envision giving as part of your legacy. Do you have charitable goals now or in the near future? Are these goals that you’d also like to focus on over the long term or encourage within your family to build charitable values through to the next generation? Are there causes or organizations that you’d like to continue to support beyond your lifetime? If so, the next step is considering and exploring which avenues of giving best align with your charitable goals and holistically within your overall financial and estate plans.

The following information is a selection of options and approaches and may not apply to your particular circumstances. To ensure your circumstances and goals are appropriately addressed, it’s crucial to consult with your qualified tax and legal advisors to ensure your charitable giving and legacy planning are structured cohesively within your financial and estate planning in the most effective way.

Bequests under a Will

For those who want to leave a gift to a charity upon their passing, an effective approach is making a charitable bequest in a Will. With this type of legacy gift, you can continue to support a cause or organization that’s important to you and it may provide a valuable tax credit on your final tax return that may benefit your estate from a tax perspective, depending on your circumstances. Bequests in a Will can be in the form of an absolute dollar amount or a percentage of your estate (which ensures the amount of your gift is automatically kept in line with the amount of your wealth at that time). You may also be able to bequeath certain assets in-kind, but keep in mind that it’s important to consult with the intended charity directly to determine what types of gifts they are able to accept.

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Another option for giving after your lifetime is to donate a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) or life insurance policy to a qualified charity by designating the charity as the beneficiary. (For Quebec residents, this only applies to life insurance policies.) A donation receipt will be issued to your estate based on the fair market value of the gift at the time the property is transferred to the charity. Your executor/liquidator may also be able to claim a donation tax credit for this gift on your final tax return, which may reduce taxes payable on your death.

According to stats from a 2014 survey, among respondents who had included a charitable bequest in their Will, 55 percent intended to gift a specific sum of money, 38 percent a residue of the estate and 7 percent a bequest of specific assets.2

Charitable remainder trust

If you’re interested in making a larger gift to a charity but you’re also keen on maintaining use of the intended gifted property during your lifetime, a charitable remainder trust may be an option to consider. This type of trust is structured so that you, the donor, retain a life interest in the property, but an irrevocable gift of the residual interest is made to a registered charity. A main benefit is that you’re provided with immediate tax relief but continue to benefit from the property for your lifetime. (While you retain the use of, and income derived from, the property contributed to the trust, neither you nor anyone else can access the assets of the trust.) Also, upon your passing, the remaining trust property will pass directly to the charity, outside of your estate, and won’t be subject to probate fees. 

Ongoing forms of giving

If charitable giving is already a priority or focus in your life or within your family, as part of legacy planning, you may be interested in options that blend both current and lasting forms of giving. These types of approaches allow you and your family to give now, over the course of your lifetime, and continue this structured giving as part of your legacy.

Private foundation

A private foundation is a registered charity that’s often funded by a single source, group or family, and offers a very personalized approach to giving. This approach can be flexible, as the donation isn’t tied to a specific charity, and directors or trustees of the foundation can award grants on a case-by-case basis.

For anyone considering establishing a private foundation, it’s important to note that there can be substantial costs associated with the setup and ongoing administration of a private foundation, so it’s crucial to properly assess the time commitment you and your family can make and the financial resources you have available for charitable activities.

Charitable gift fund

For those who want to create an enduring charitable legacy in a structured and convenient way, a charitable gift fund (or donor-advised fund) may be an option. It allows you to make an irrevocable gift of cash or other assets (such as a gift in-kind of appreciated securities) to a fund that’s administered by a registered public foundation. From a tax standpoint, donors receive a donation receipt equal to the value of the assets donated, and any income earned on the contributions invested stays in the fund and is not subject to tax.

Donors may recommend how contributions are managed and which charities are to receive grants from the fund. This approach can also be beneficial in helping to encourage the transfer of family values to future generations. There’s also flexibility in that the fund can be more of an endowment style, where the fund remains ongoing after your lifetime and can last in perpetuity, or where the remaining balance can be granted out more quickly after your passing.

Sabrina and Antonio – A case study

Sabrina and Antonio are in their late 40s, and have two teenaged children. They currently give to charity each year, but as busy professionals, they don’t have a great deal of time to commit to charitable activities. Recently, one of their extended family members faced a battle with cancer, and they now have a keen interest in supporting this type of healthcare cause. They are also whole-hearted animal lovers.

Overall, Sabrina and Antonio are looking for ways to turn more focus to charitable giving and build it into their short- and long-term planning, and want to further develop these values with their children, who are already showing interest in giving and giving back. They also want to maintain a certain level of flexibility as their charitable interests potentially change or expand over time or as they want to revisit how much or what they contribute.

In discussions with their qualified advisor, Sabrina and Antonio decide that a charitable gift fund aligns with their goals and circumstances for a number of reasons:

  • It allows them to establish plans now in a meaningful and convenient way.
  • They can make grant recommendations for the healthcare and animal charities they’re passionate about.
  • The structure helps to encourage family conversations and decisions about which charities will receive grants and enables them to involve their children.
  • There’s flexibility in the contributions over time, the grant disbursements, and how and when the funds are disbursed after their lifetime.
  • Their children can be named as fund successors to have their charitable fund extend across generations.
  • This structure will likely enable them to give more over time to the causes they care about, as contributions grow in a tax-deferred manner in the fund.

To find out more about this approach and how it can unfold in a real-life scenario, please view “Drew and Sue’s Story” on the RBC Wealth Management Our Approach webpage.

The RBC Charitable Gift Program is specifically designed for individuals and families wishing to support charitable causes in a meaningful way, without the time and cost associated with establishing a private foundation. Through this program, you can make initial and ongoing contributions to a charitable gift fund, which is administered by our foundation partners at Charitable Gift Funds Canada Foundation. With your RBC advisor, you can determine the timing of contributions, which asset, how much to contribute over time and as it fits within your financial plans, and the funds stay invested with your trusted advisor. It is an easy, convenient way to support charitable causes you care about, today and in the future, while receiving important tax benefits.

The role of the fund successor

An important role within a charitable gift fund is that of the fund successor. Naming a person (or people) close to you, or setting the foundation to administer your fund (as per your charitable directions on file), allows you to choose who or how you'd like to continue to have your fund managed once you're no longer able to (either after your lifetime or in a situation of incapacity).

By naming a fund successor, you gain the assurance of knowing who will continue to direct the impact of your charitable dollars, and it can be a key component in helping to ensure the longevity of a charitable gift fund and make charitable giving a longer-term family value.

References
  1. Canadian Legal Wills. Planned Giving: The state of charitable bequests in Canada. Accessed August 2019. https://www.legalwills.ca/blog/planned-giving-canada/; Leave a legacy Vancouver. Statistics on giving. Accessed August 2019. leavealegacyvancouver.com/statistics-on-giving.
  2. Canadian Legal Wills. Planned Giving: The state of charitable bequests in Canada. Accessed August 2019. https://www.legalwills.ca/blog/planned-giving-canada/.
 

 

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliates. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licenced representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc. and the private client division of RBC Global Asset Management Inc., Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licenced as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada 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. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason.

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