It’s that time of year when individuals might be considering, either intentionally or through solicitation, providing financial support to their favorite charitable causes or organizations.

For many families, charitable giving is done on an ad-hoc basis. However, individuals may want to consider developing a strategic philanthropic plan to enhance a sense of social responsibility for their family and to help ensure that their giving can achieve the significant impact that they intended.

An effective plan should begin by identifying the family’s core values, as it is imperative that the philanthropic plan be aligned and focused on these ideals. The plan should take into account important considerations, such as determining when to give and how to give. This is where professional advisors can help guide their clients.

When to Give?

Individuals can donate during their lifetime, at the time of death, or even both. Some of the factors that play into the consideration of when to give center around: i) a review of one’s overall financial picture to ensure their current lifestyle and retirement financial needs can be achieved; ii) the desire to maximize tax efficiency during their lifetime and to minimize taxes on death; iii) the desire to actively build the family’s legacy and the importance of teaching philanthropy to family members; and, iv) understanding the financial needs of the causes or charities that they want to support and the amount of control they would like to maintain over their philanthropic capital.

If an individual decides to give upon death under their will, it is important to adequately document which specific charities they would like to donate to, the amount they want to donate and if there are special purposes the donation is to be used for (such as a specific program). The individual with the help of their professional advisors should consult with the organizations to understand any specific wording requirements that need to be satisfied or included in their will in order to ensure that the donation is made properly and in accordance with their wishes. Also, if at a later date the individual wants to make a change to the gift in any way under their will, then they should ensure with the assistance of their professional advisors that such changes are made pursuant to the formal legalities required to make changes to a will.

As many of us are aware, there are tax advantages associated with making charitable donations, including enhanced benefits for certain types of gifts. When donating to a qualifying charity, individuals will receive a charitable donation tax receipt equal to the fair market value of their gift. The donation receipt can be used to generate non-refundable tax credits which help reduce an individual’s income tax liability. A person may claim charitable donations in their annual income tax return for total gifts in a year up to 75% of their net income (subject to certain exceptions). Any charitable donations that are not used in the current tax year may be carried forward for up to five years.

At the time of death, the charitable donation limit is increased from 75% to 100% of net income for both the year of death and the year before death (any unused donations from the year of death can be carried back to the year before death). In addition, CRA’s administrative practice allows a taxpayer to claim charitable donations made by their spouse or common law partner.

Pursuant to the Income Tax Act when a publicly traded marketable security is donated to a qualifying charity the capital gains realized on the disposition of the shares is exempt from tax. Therefore, including the donation of publicly traded marketable securities as part of an individual’s strategic philanthropic plan could result in additional tax benefits. If an individual is making a substantial gift of marketable securities to charity in their will, professional advisors should review their client’s plan to determine if there could potentially be unused charitable donation credits and thus an opportunity to donate during their lifetime.

How to Give?

Regardless of when an individual decides to make their donation, there are two main ways of how to give: directly and indirectly.

When giving directly, an individual is specifically naming the charity that they would like to donate to and the amount. During an individual’s lifetime that may be an annual cash donation and at death it may be a specific legacy amount under the terms of their will.

When considering an indirect donation, an individual is creating an intermediary between themself and the potential charitable beneficiaries, therefore controlling the amount and timing of when a charity would receive the donation amount. The most common indirect donation options are establishing a donor advised fund with an existing foundation or a private family foundation.

The tax consequences of donating are the same regardless of whether the donation is made directly or indirectly.

If it has been decided that the donation should be made indirectly, the next step is to help evaluate whether to establish a donor advised fund or a private family foundation. There are several factors to consider when determining which option is right for the individual and their strategic philanthropic plan, including the costs of setting up the structure, control over donation amount, managing the administration of the structure and privacy and disclosure concerns.

When comparing private family foundations to donor advised funds, each have their advantages and disadvantages. Some advantages of donor advised funds are that they are less expensive to establish and require less maintenance than a private family foundation because the administration, investment and maintenance are generally the responsibility of the foundation managing the donor advised funds. Also, if privacy and anonymity are important considerations, there is less public disclosure associated with a donor advised fund than what an individual would otherwise be required to provide if they were to establish and maintain a private family foundation. Under a donor advised fund, the individual would make recommendations to the foundation as to which eligible charities would receive the donated funds. However, if there is an intention to provide employment and remuneration opportunities to individuals for services provided in respect of philanthropic services and/or if there is the intention to directly operate charitable programs, there would be advantages to establishing a private family foundation in such scenarios.

Developing a charitable giving strategy that takes into account the individual’s personal goals and circumstances, financial/tax situation and contemplates when and how to give will help the individual achieve their philanthropic objectives. Taking the initiative to start the conversation is a good first step in the process.

About the Authors

As Vice-President, Wealth Planning, Jag Gandhi specializes in trust and estate planning for business owners, high-net-worth and ultra-high-net worth individuals and their families. She regularly advises clients on wills, trusts, powers of attorney, estate and trust taxation and estate planning and administration.

Before joining Gluskin Sheff in 2021, Jag spent over 11 years in private practice as a trust and estate planning and administration lawyer, most recently as a partner at Miller Thomson LLP in the Private Client Services group and previously as legal counsel at Wilson Vukelich LLP. She regularly advised clients on complex domestic and cross-border estate planning matters while working closely with professional advisors to identify priority issues, develop solutions and implement strategies to build and preserve a client’s wealth and wishes.

Jag serves on the Board of Directors for the Mackenzie Health Foundation and is a frequent writer and speaker on various topics relating to trust and estate planning and estate administration. She enjoys travelling and spending time with her supportive family and believes in living a healthy lifestyle.

As Vice-President, Wealth Planning, Mark Skeggs helps explore succession, tax, retirement and estate planning issues for our business owner and high net worth clients.

Prior to joining Gluskin Sheff in 2020, Mark spent the first fourteen years of his career in the High Net Worth, Private Company Services group at PwC LLP where he was responsible for the creation and implementation of effective tax strategies for wealth preservation and accumulation in the context of tax, estate and succession planning for owner-managers of private companies, senior executives of public companies and professional athletes. In 2011, he joined RBC Wealth Management Services where he served as a Business Owner Specialist and High Net Worth Specialist; and continued serving as a trusted business advisor to clients and providing tax, estate and succession planning advice.

Mark has received various awards in recognition of his outstanding contributions to the community throughout his career. He currently serves as the Chair of the Queen’s University Gift Planning Advisory Committee. Mark enjoys coaching his children’s hockey and soccer teams.