Transcript Giving it Away

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/Beliefs
Research 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
Dynasts, 8%
Communitarian, 26%
Altruists, 9%
Repayers, 11%
Devout, 6%
Socialites, 15%
Investors, 21%
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?
Questions?
Linda Caisley
604-785-3674
[email protected]