Donate securities to charity (and be a bit of a tax Scrooge)

You may have heard that there are tax advantages to giving to charity, particularly if you want to give shares and securities, but do you really understand how it works? Do you know whether it might work for you? I'm attaching a link to an excellent article in the Globe and Mail by Tim Cestnick that really explains it well. Click here to read it. Although the article talks about charitable giving while you're alive, the same tax principles apply to giving to charities through your will.

2011-12 Donor's Guide is now available

This blurb from http://www.donorsguide.ca/ says it all (paper copies are available, but note the link below to the online digital edition (free):

“The Canadian Donor’s Guide is like the Yellow Pages: an essential first-line resource for lawyers and donors. It’s an essential outlet for any charity that is serious about planned giving.” ~ Malcolm Burrows, Head, Philanthropic Advisory Services, Scotia Private Client Group

The Canadian Donor’s Guide to fundraising organizations in Canada (Guide des donateurs canadiens faisant état des organismes de souscription de fonds) is the only authoritative annual directory to charity in Canada, primarily used in planned giving. Donors, Philanthropists, Lawyers, Accountants, Trust Officers, Will and Estate Planning Officers, Taxation Professionals, Financial, Insurance and Investment Advisors, and other professionals use the Canadian Donor’s Guide to make decisions on philanthropy: bequests, major donations, and other charitable gifts.

The Canadian Donor’s Guide is the annual reference book for donors and their advisors containing data on charities collected by questionnaire as well as pertinent editorial content. No other publication contains this breadth of information on charities in Canada.

Available both in print and online in our Digital Edition. Sponsored by Scotia Private Client Group. Published with co-operation of the Canadian Bar Association, Imagine Canada, and Canadian Association of Gift Planners.

(Attached photo is also from http://www.donorsguide.ca/ ).

Charitable giving has social and tax benefits

Most of us know that giving to charities makes us feel good. But do you know about the tax benefits? Click on the link below to read this story from the Calgary Herald. Charitable giving has social and tax benefits

Can I leave my estate to charity?

A reader recently asked whether he could leave his full estate to charity. While many individuals want to leave specific amounts of money to various charities that have touched their lives, some individuals want to give their full estates. If this is something you are considering, here are some things to think about:

1.  Before you can give your estate to a charity, you must make sure that you leave adequate support for your dependants, if you have any. These are normally your spouse, your minor children, and adult children who can't earn a living because of a handicap.

2.  If you do not make a will, your estate will not go to charity. Period.

3.  Your estate doesn't have to be completely liquid to leave it to charity. If your estate a house in it, for example, the house would be sold by your executor and the money given to the charity.

4.  Make sure that you are very specific about which charities you wish to benefit. For example, if you just say "the cancer society", you should be aware that there is a national cancer society, several provincial societies, and many charities that are focused on specific kinds of charity (e.g. breast cancer) or specific groups who suffer from cancer (e.g. children) or specific hospitals. If you are unclear in your will about who is to receive the money, your estate could end up in court. Not all court applications are necessarily a fight; some are simply to figure out what a poorly drafted will is supposed to mean.

5.  It is often possible to name a specific purpose for a charitable gift, but you should be careful about this. You can, for example, say that funds are to be used for research or a building fund or a specific project. If you do so, you run the risk that by the time you pass away, that charity may not still be involved in the project you've mentioned. If you don't name a specific purpose (and most people don't) then the charity will use your money for whatever it identifies as a priority at the time.

6.  It's also possible to use your estate to set up a scholarship in your name. If this interests you, make sure you do some research and put some real thought into the idea. For example, there is no point setting up an annual scholarship for a promising music student at a college with no music program.

7.  You don't have to leave your estate all to one charity. You can name as many as you like, in the proportions you choose.

8.  If you have at least $300,000 to be given to charity, you have the option of going through a foundation. By doing so, the principal amount would be invested for a period of time or forever, and the income from the investment would be distributed to the charities each year. This is often done through a person's will, but can also be started  while the donor is still alive, with the funding coming after the donor has passed away. You would decide on a procedure that would work best for you by talking to an estate planning lawyer or financial planner, who can help you figure out the tax advantages of each method.

Using a foundation is simpler and cheaper than it sounds. It's possible to spend the time and money to establish your own foundation from scratch. A more popular choice is to use a foundation that already exists, such as Scotiabank's Aqueduct Foundation or your local community foundation.

9.  There are tax advantages to leaving your estate to charities. The impact of these advantages on your estate will depend on a dozen different factors, so you should discuss them with your financial planner, lawyer or accountant.

Some links you might want to check out:

Canadian Donor's Guide lists charities by type, name, etc and is a great resource if you are looking for charities that deal with a specific cause or purpose.

Canada Revenue Agency database lists all charities registered in Canada so you can check on their current status.

Aqueduct Foundation

Charitable donation tax credit

This article from Canadian Tax Resource Blog describes how to apply a charitable donation to your tax return. It talks about giving through assets other than cash, and how much of a deduction applies (including in the year of death where 100% is deductible). You can see by reading this article some of the ways in which charitable giving ties in with estate planning. And even though this is a tax article, it's easy to read! Click here to read it.

Holiday charity scams

This article from Global Edmonton has several tips to help avoid being scammed by fraudulent fundraisers. Click here to read it.

Tax scheme too good to be true?

I found this article in the Financial Post to be truly interesting, particularly as it reveals the numbers of Canadians who are using (or WERE using) these donation schemes in the hopes of reducing taxes. It's a long article but very well done and informative. Please read the article here if you're thinking of going to a seminar to learn how to use tax shelters.

Forget cash donations, give securities instead

This article from the Financial Post talks about the tax reasons behind giving securities instead of cash to your favourite charity. Click here to read it.

Make 2010 the Year YOU Start Planned Giving

Have you wondered about whether planned charitable giving would be of benefit to you? Have you wondered how to go about it or how to get started? This article from Martignetti Planned Giving Advisors is the fifth of a series of articles about just that. Click on the link below to read the article, and find links to parts one through four of the series as well.

Make 2010 the Year YOU Start Planned Giving

The attached photo is from that article as well.

The charity ribbon colour test

We often see people wearing loops of coloured ribbon on their lapels in support of a charity or cause. Some ribbons are more familiar to us than others. Do you know which causes are represented by the different colours? To find out, click here to take an online quiz.

I managed to get 8 out of 10 correct, though I admit there was some guessing involved. The attached graphic is from the online quiz at mental_floss.com

Gifting tax audits ensnare 170,000 Canadians

This article from the Globe and Mail talks about taxpayers who have been busted for claiming more as charitable donations than they actually gave. I'm posting it because many Canadians include charitable giving in their estate planning for tax (and other) reasons, and this article shows how it can go very, very wrong if not done through reputable people and firms. Click here to read the article.

Trust but verify all charities

Click here to read this editorial from the Edmonton Journal about safely giving to charities. In my opinion, this advice applies not only to your regular charitable giving, but to the planned giving set up through your Will.

As for verifying the charities, one easy way to do that is to click on the link on the right hand side of my blog for the Canadian Donor's Guide, which lists charities both alphabetically and by topic. It gives addresses, charitable number and other information.

Planned Giving and University Gifts

Planned Giving and University Gifts – Resources This is a detailed description of how universities make it easier for individuals to plan to leave a legacy to their alma maters in their Wills.

More billionaires sign the Gates-Buffet giving pledge

A good news story from the Wall Street Journal. The pledge now has 40 signors who agree to give away at least half their fortunes before they die. Click here to read the story.

2010 edition of Canadian Donor's Guide is now available

The 2010 edition of the annual Canadian Donor's Guide is now available online here. This guide lists all Canadian charitable organizations. They are organized alphabetically as well as by topic. If you're considering making a charitable gift in your Will but aren't sure where you want to give it, this guide is great for browsing through. I bet you'll find charities in there you didn't even know existed.

What happens if the charity named in the Will no longer exists?

Many people leave gifts to charities in their Wills. Unfortunately, by the time the testator passes away, the charity they chose might no longer exist. This could leave the executor wondering what to do about the gift.

Does the executor simply not pay the gift intended for the charity to anyone (in law this is referred to as a lapsed gift) or does does he/she pay it to another charity instead (in law known as as the cy-pres doctrine)?

The answer to that question depends on a number of things. First of all, did the charity that no longer exists actually become a different charity? Did it amalgamate with another charity? Was the work being done by that charity now being done by another? In cases like this, the new charity that is carrying on what the old one used to do is considered a successor charity, and the gift might be paid there instead. This is as close as the executor can get to fulfilling the testator's wishes.

Assuming there is no successor charity, you also need to look at whether the charitable gift named in the Will is intended to go to one particular organization, or whether it's really meant as a general charitable intent. This can be construed from the wording of the gift itself, and the context of the Will as a whole. As a general rule, gifts that seem more like a general charitable intent will be upheld and paid to the closest possible match to that general intent.

As always, the specific wording of a Will must be a deciding factor. Does the testator say anything about what happens to a charitable gift if the charity no longer exists? These days, experienced Wills lawyers will cover that off in the Will, knowing how much confusion and delay can be prevented by adding a simple sentence about what to do.

Always remember that a Will should not ever contain anything that can be taken two ways. For every person urging the executor to pay the gift to another charity, there is a beneficiary hoping that the gift will fall into the estate and be paid to them. If you have a charitable gift in your Will, check it to see what instructions you've left for this situation.

If you are an executor and just can't decide what you are supposed to do in your situation, I urge you to be careful, and keep in mind that if you make a mistake with the estate, you can be held personally liable for it. It's probably best to get a legal opinion on what to do.

Can my parent still give to charity if he or she has lost capacity?

Whether or not a person with diminished capacity can continue to give to his or her charities or church of choice will depend on a couple of factors.

First of all, what is the extent of the loss of capacity? For many elderly people, loss of capacity may start with some memory loss or confusion and progress from there. Progression is faster in some people than in others.

Capacity matters because if a person is struggling with financial transactions because of memory loss or confusion, this makes them vulnerable to unscrupulous individuals and they may need help from a family member or trust company to handle their money.

This leads us to the second factor. What kind of legal arrangement is in place?

There are different levels of help available, as discussed in detail in an earlier blog post. If the arrangement that is put into place is a supported decision-making or co-decision-making arrangement, or representation agreement, the elderly person still has the ability to decide (with some help) how his or her money is to be spent. He or she can continue on the same pattern of giving as before the loss of capacity.

On the other hand, if there is a more advanced loss of capacity, the legal arrangement put into place could be an Enduring Power of Attorney. This generally means that the elderly person no longer has the legal right to make financial decisions.

Being an Attorney under an Enduring Power of Attorney automatically places restrictions on what an Attorney can do with the elderly person's money. Many people don't realize that the Attorney is not allowed to give away the elderly person's money, even to charities. The exception to the rule is that if the Enduring Power of Attorney specifically says that charitable giving can continue, then it is perfectly fine to keep up the previous pattern of charitable giving.

This is one of many, many reasons why estate-planning documents are never fill-in-the-blanks type of documents. They need to be responsive to individual situations. When you or your parent discuss Enduring Powers of Attorney with your lawyer, you should be asked whether there are situations (such as the desire to give to charities even after loss of capacity) that would require special clauses in your document.

If there is no Enduring Power of Attorney and the loss of capacity is severe or complete, the legal arrangement may be a trusteeship. Unless there is specific authority to make charitable donations, such donations usually have to stop. In provinces where trustees are required to file Trusteeship Plans with the court, they can build charitable donations into the Plan. In this way, they ask for the judge's consent for charitable giving to continue.

Summary: an elderly person can still give to charities after loss of mental capacity as long as the right legal documents are in place to authorize the person's helpers to make those donations.

Giving land to charity in your Will

I had a really interesting question from a client today. The client owns an acreage, and very generously wants to donate the land to her church in her Will. She wants it to be used for a camp or home or other activities, rather than having it sold and the money used for church activities. This seems like a simple request, and I've heard several like it over the years.

However, this kind of gift needs careful thought.

What if the charity doesn't do the kind of work or activity the donor has in mind, or is in the process of winding down that kind of activity? If the gift can only be used for that specific purpose, the charity is going to have two choices. One, they can refuse to accept the gift, in which case the donor not only loses any tax deduction she would have gotten from making the donation, but the gift is now going to go to someone she hadn't wanted.

Two, they can accept the gift but never do anything with it, carrying the costs (such as property tax) for many years while the land sits idle. Donors rarely give money along with the real estate in a sufficient amount to allow the charity to support the property. This isn't thoughtlessness; it stems from a genuine desire to see a beloved property put to good use.

Unfortunately neither of the two choices seems anything like what the donor envisioned.

Perhaps a way of mitigating this problem is to set out the purpose the donor wants in the Will, but put a time limit on it. For example, the Will could say that if the charity wasn't able to use the gift for the stated purpose within ten years, it could be sold and the money used for other charitable purposes.

If you are considering giving real property to a church or charity, it is definitely worth your while to talk to an estate planning lawyer about it, or to call or visit the charity of your choice to discuss how they could use your gift. They will appreciate your generosity but might also be able to give you practical ideas about how to make it work.

Who do leave my estate to if I don't have kids?

From time to time I meet clients who don't have spouses or children and they want ideas about where to leave their estates once they pass away. The first thought most people have is to divide the estate among their siblings, and that is a viable idea.

A variation on that is to leave money in trust for family members such as nieces and nephews, with instructions that the trust be used to pay for their education.

Another popular idea is to leave some or all of your estate to charities. Some people have causes that are dear to their hearts because a charity helped them or family members in the past. I met one client who is leaving several million dollars to a group of charities that deal with different aspects of illiteracy, as well as public libraries, because he struggled with reading his whole life.

Many clients like to leave money to the college or university they graduated from. It is possible to use your Will to set up a scholarship at a particular faculty at a particular school to help future students who may not be well off financially.

You can benefit several charities and get a tax break for yourself now by giving money to a charitable foundation such as Scotiabank`s Aqueduct Foundation or the Edmonton Community Foundation. In this kind of arrangement, your monetary gift is invested and the interest on it is used each year to give charitable gifts to the charities of your choice. The principal is not used, except to generate more income. You can then use your Will to give the rest of your estate to the foundation and continue on your pattern of giving.

To get ideas about which charities are out there and what kinds of activities they are involved in, go to http://www.donorsguide.ca/ . For more in-depth information on charitable organizations, go to http://www.charitycan.ca/.

If you are interested in any organization in Canada and want to know whether it`s a registered charity or not, check out the Canada Revenue Agency website at http://www.cra-arc.gc.ca/charities/.

Sometimes people wonder whether the government will take their estates if they don`t have a Will and don`t have a spouse or children. The government does not become a beneficiary of your estate unless and until absolutely no relatives can be found. The Intestate Succession Act of Alberta sets out who gets your estate if you die without a Will. If you do not have a spouse or children, the Act says your estate will go to your parents, your siblings and eventually more distant relatives. The better idea is to make a Will that sets out your wishes.

You should ask your estate-planning lawyer for ideas and talk over the possibilities.