giving it away linda caisley, cfp cifps vancouver conference
TRANSCRIPT
Giving it Away
Linda Caisley, CFP
CIFPs Vancouver Conference
Topics
Triggers
What is a Gift?
Giving Options & Types of Gifts
Receipts & How They’re Used
Recognition and Stewardship
Philanthropic Triggers
Philanthropic Triggers
Age
Values/beliefs
Financial situation
Being asked to give
Being told to give
Age
Several points in the lifecycle when a person might give money (usually big events)
– Death or sickness of a loved one
– Marriages
– Estate planning
– Pre-mortem planning for self
Values/BeliefsResearch by Russ Alan Prince and Karen Maru File in the Seven Faces
of Philanthropy identifies seven
distinct groups of values or beliefs based
donor motivations:
Communitarians
Devout
Investor
Socialite
Repayer
Altruist
dynast
Communitarians
Give to support their community
Believe that it makes sense to have a strong community, supported by business, charity and government
Follow advice of community leaders and professional advisors
No particular sector of interest, other than charities that make the community better in some way
Give regularly, and in estates
Devout
Believe that it is God’s will for people to support others
Usually members of a church or religious group
Generally give primarily to religious groups or charities
Follow advice of religious leaders
Give regularly, but not necessarily big donations
Investor Affluent, and want to give
Invest in philanthropy in the same way they invest their own money
Want to see the charity’s financials, know the senior management
Take advice from professional advisors, friends
Support a wide range of charities, often umbrella organizations
Give strategically, often larger gifts
Socialite Enjoy having a good time while they are giving money
away
Have strong social networks
– Want their philanthropy to further these networks (to look good in front of their friends)
– Use these networks for quid pro quo donations
Take advice from social networks
Support the arts, education, religious groups
Give regular gifts, usually relatively small amounts
Repayer
Doing good in return for good done to them
Give from loyalty or obligation
Usually support medical or educational charities
Seldom rely on advisors
Wide range of gifts, regularity depends on nature of service used
Altruist
See themselves as selfless givers; giving is a moral obligation
Often want to remain anonymous
Usually focus on social causes
Rarely use advisors
Dynast
Have been taught to give as a family tradition
Usually have inherited wealth, but not always
Different generations support different interests
Most likely sector to use advisors
Regular givers, like to be involved in researching causes
Donor Motivations
Communitarian, 26%
Devout, 6%
Investors, 21%
Socialites, 15%
Repayers, 11%
Dynasts, 8%
Altruists, 9%
Donor’s Personal Financial Situation
Donors make smaller gifts any time
Larger gifts will only be made if the donor:
– Knows they have enough money
– Feels they have enough money
Being Asked or Told to Give Some people will give of their own accord,
others need to be prompted to do so
Donors will usually make a donation if asked
Sometimes advisors tell their clients to make a donation as part of their tax planning
Sometimes advisors discuss giving as part of an overall tax plan
Gifts – What Are They?
What is a gift? A gift must:
– be given freely and voluntarily
– be made with “charitable intent”
– be of property, not services
– not permit the donor to control the property once it has been given
Charitable Intent
Proves the donor intended the donation to be a gift worthy of a tax receipt
New regulations intended to prevent fraud by charities and donors
Proving Charitable Intent
Must be proved in situations where there is some kind of benefit back to the donor, by either
– Demonstrating to the Minister that you intended the donation to be a gift
– Showing that the benefit back to the donor was not more than 80% of the gifts FMV
Giving Options
Options
What is a gift?
Source of Donation Money
Ways to make gifts
Types of Gifts
Source of Donation Money
Cash based gifts
Asset based gifts
Cash Based Gifts
Made from “left-over” cash
Generally under $1,000
Gifts generally come from the donor’s yearly “charitable budget”
Usually only made by handing over cash or writing a cheque
Asset Based Gifts
Gifts made by transferring all or part of the value of an asset
Usually require assistance and consultation with family and advisors
Made irregularly, usually in estate planning, when they receive a windfall, or special opportunities (naming a chair)
Ways to Make Gifts
Directly to the charity
Through an umbrella charity
Through one’s own private foundation
Giving Directly to Charity
Simplest form of giving
Need to be clear about what you’re expecting back in recognition for the gift
Generally lose control of the money once the gift has been made
Types of Charities
Charitable Organizations
Private Foundations
Public Foundations
Charitable Organizations
Use most of their resources to carry out programs or services (“doers”)
73,791 charitable organizations in Canada
Hospitals, schools, churches, animal shelters, food banks, etc.
Private Foundations Created by a group of related individuals
The foundation issues “grants” each year to other charities
Can support multiple sectors or just one organization
Good way to have philanthropy last beyond death, or involve family
Can be created during lifetime, funded through estate
Public Foundations
Created by a group of unrelated community members interested in a specific cause
The foundation issues “grants” each year to other charities to support that cause
Can support several organizations within one cause, or just one
Affiliated foundations: support only one specific charitable organization
Hospital foundations, school foundations, etc.
Giving Through An Umbrella Charity
Umbrella charities act as a kind of charitable broker:
– Community foundations
– United Ways
Good for donors who don’t have a particular cause in mind
Need to understand whether you lose control of the gift once it’s gone
Giving to a Private Foundation
Offers the donor the most control over the investment, timing and use of the donation
Allows the donor to give one large donation to the foundation and then space out the grants from the foundation
Types of Gifts
Securities
Life insurance
Charitable remainder trusts
Donor advised funds
Private Foundations
Securities
Can:
– transfer public securities directly to a charity or
– donate sales proceeds from either private or public securities
Donor will get a tax receipt for amount donated, and must consider gains or losses in own personal tax situation
Transfers have better tax results than donations of sales proceeds
Sale of Securities
If a donor sells public or private securities and transfers the proceeds to any charity, they must incorporate the gains or losses in their personal taxes at the usual rates
Transfers of Securities
Transfers of public securities to:
– a public foundation or a charitable organization allow the donor a special inclusion rate – currently only 50%, most recent budget indicates 0%
– a private foundation have no special inclusion rate
Transfers of private securities to any charity have no special inclusion rate
Receipting Securities
Public securities transferred to a charitable organization or a public foundation are receipted when received by the charity’s broker, using closing values for the day they are received
Receipt value will not be the value when sale order given
Things to Clarify
If transferring private securities, will any restrictions be placed on their sale by the donor?
Will the charity accept these restrictions?
What are the personal tax implications to the donor?
Life Insurance
Types of gifts:
– Name a charity as beneficiary
– Name a charity as irrevocable beneficiary
– Transfer ownership to a charity
IT-244R3 Gifts by Individuals of Life Insurance Policies as Charitable Donations
Policy Values
A life insurance policy will be worth either:
– NET cash surrender value at time of transfer (CSV – any policy loans), or
– Death benefits at the time the charity receives the death benefits
Life Insurance - Receipts
Receipts are given when the charity receives the benefit
– On transfer of ownership, where there is CSV
– Receipt of death benefits, where no CSV policies and no ownership transfers
– On payment of premiums
Things to Clarify Who’s going to own the policy?
Who’s going to pay the premiums?
Does the donor want to be able to continue to access any CSV in the policy?
Consider creating a legal agreement for multiple beneficiaries or special donor terms
Charitable Remainder Trust Putting money into a trust
– Donor or donor’s family can benefit from income during donor’s lifetime (“income beneficiaries”)
– No dipping into capital
– Charity gets remainder when income beneficiaries have died
Receipts for CRTs
Receipt is given by the charity at the time the CRT is established
Receipt value is for the net present value of the benefit to be received by the charity, at the end of the income beneficiaries’ calculated lives
Things to Clarify
Can be challenging to establish net present value of an asset with a subjective value
– Private company shares
– Art collection
Can be challenging to determine lifespan of income beneficiaries
If donor dies 2 weeks after CRT is established, the value of the receipt doesn’t change
Donor Advised Funds
A fund at a charitable organization or a public foundation
Donor makes a gift to establish the fund
Income from the fund spent each year as donor “recommends”
A “deed of gift” will be created to set out the terms of the fund
DAF Challenges
Donor loses control over assets – they become the charity’s assets, not the donor’s
– May not be able to retain assets as they are
– Cannot dictate ongoing investment options
Can’t control costs (administration or investment)
DAF Challenges, cont’d
Donor can only make recommendations (not directions) about how income is to be spent
Portfolio manager loses assets out of their book
May be a minimum gift amount ($10,000)
DAF Benefits
Donor doesn’t have to worry about administration of the fund
Fund will carry on after the donor’s death
Things to Clarify
Does the donor mind losing control of the assets?
Does the charity have some kind of review process in place to ensure compliance with the terms in the deed of gift?
Would a private foundation be a better option?
Private Foundations
A form of charity established by a group of related people
Minimum of 3 directors
No minimum dollar amount for initial gift or any subsequent gifts
Administrative costs can be as high or as low as you want
Private Foundation Benefits Donor can continue to control the way the
foundation’s assets are invested
Donor can decide when and how much to donate into the foundation
Donor can control costs
Private Foundation Benefits
Donor can bring family into philanthropy
Can survive donor’s death
Can control management
Private Foundation Challenges
Administration issues are not always clear – what needs to happen and when?
Donor isn’t always clear about what they want to support
Things to Clarify
What’s the donor’s need for control level?
What kinds of assets are going to be put into the foundation?
Receipts
Tax Credits for Gifts up to $200
Federal Tax Credit Rate: 15%
Provincial credits range from 6.05% (BC) to 11% (Sask)
Tax Credits for Gifts Over $200
Federal Tax Rate: 29%
Provincial Tax Rates range from 14.70% (BC) to 18.02% (Newf.)
See Tax Reference Tables in ITA for specific provincial rates
What’s the Gift Worth?
Receipt will generally be for the fair market value of the donation
Must have an objective, provable fair market value
Must outline “eligible amount” of the gift
Eligible Amount of a Gift
Every donation has 2 parts to it:
– The charitable (aka “eligible”) part
– The benefit to the donor
Sometimes the benefit to the donor is $0
Receipts have to calculate the eligible amount of the gift
Eligible amount of the gift impacts charitable intent
Value of Receipt
Receipt can be used up to 75% of income for any given year (100% in year of death)
Unused receipt amounts can be carried forward 5 years, back one year if the donor dies
When a Receipt Cannot Be Issued
The donation doesn’t fit the legal definition of gift
The donor hasn’t demonstrated charitable intent (usually by failing the 80% rule)
When a Receipt Shouldn’t Be Issued
You are unable to establish a fair market value for the gift
The value of the donation is too small for the amount of work involved in issuing the receipt
Recognition and Stewardship
Recognition
Recognition is the kind of thank-you the donor receives for the gift
– A letter
– A plaque
– A building named after you
Stewardship
Stewardship is the ongoing relationship the charity has with the donor
– Lunch with the President once a year
– Invitations to events
– Accountability statements
– Investment reports
Things to Consider
Value of recognition can outweigh the value of the gift – if this happens, no receipt!
Does the donor want to be anonymous?
Does the donor want any relationship with the charity’s board? Staff?
Summing Up
Who to ask for Help Lawyers for info on tax, legal or estate
implications of a gift
Accountants for info on tax or estate implications of a gift
Gift planners for info on whether the charity can accept a gift, the terms of the gift and the value of the receipt
Things to Remember What motivates the donor to make the gift?
Is the gift a one-time thing or ongoing?
What kind of assets will be used?
What kind of control is needed?
What will the receipt be worth, and how should it be used?
What kind of recognition is sought?
