With the onset of the COVID-19 pandemic, we have seen inspirational stories of individuals and organizations helping their communities and supporting causes in a variety of ways. During this time, you may be thinking about how you can contribute more or whether you should revisit your charitable giving approach.
If you wish to donate to a cause that you care about; you may be wondering how best to give, how to make your dollars go further, and which organizations to support.
As a donor, an effective way for you to continue your charitable giving for an extended period is to establish a donor-advised account. It’s a flexible way to help you shape your philanthropic legacy and maximize the impact of your giving. You can continue your tradition of charitable giving and experience the benefits of a private foundation, without the upfront costs and administrative responsibilities. This can be done either during your lifetime, or after, and will facilitate grants over an extended period or in perpetuity to the charities you choose.
For example, the IG Wealth Management Charitable Giving Program – a partnership between IG Wealth Management and the Strategic Charitable Giving Foundation – is a donor-advised charitable giving program that facilitates philanthropy without the administrative responsibilities, time commitment or the expensive setup and continuing costs of a private foundation.
“The program can be a really good fit when creating a robust giving plan”, says Craig Hughes, Director of Tax and Estate Planning at IG Wealth Management. “It is important to have a plan that looks at everything from how best to give, creating a legacy, tax efficiency and how donating fits into your estate plan”. The program can complement this plan by providing greater flexibility than a traditional donation direct to charity.
Under the program, donations are made to the Strategic Charitable Giving Foundation, a public foundation registered as a charity with the Canada Revenue Agency and the Quebec Ministry of Revenue. The Foundation receives donations, which are eligible for a donation tax credits, and maintains accounts to facilitate annual grants to charities selected by you.
Donation tax credits received by you can be used to provide tax savings and effectively reduce your taxes owing. High income earners can receive additional value from their donation tax credit, providing further tax incentives. There is also flexibility to carry-forward donation credits to any of the following five years or utilize them on your spouse’s tax return.
Managing your charitable giving is easy and convenient. You can choose to establish an account and make donations during your lifetime, or you can provide direction in your last will and testament to donate as part of your estate plan. You can also name the foundation as the beneficiary of a life insurance policy, RRSP, RRIF or TFSA; which can provide further estate planning opportunities and reduce assets subject to estate taxes. In Quebec, there may be restrictions on the circumstances in which you can designate a beneficiary.
You can name the account as you so wish, so that your family name can be associated with charitable giving for years to come. You can also designate successors, such as children or family members, to assume responsibility for recommendations on the account after your death or incapacity. This can establish a multigenerational tradition of philanthropy.
There is significant flexibility in selecting what to donate. A strategic approach to donating can maximize tax efficiency of donations during your lifetime or by your estate. If you hold publicly traded securities; such as stocks, bonds or mutual funds, and choose to gift these investments then additional tax savings can be realized.
We have seen market volatility recently as a result of the COVID-19 pandemic, but is it still an effective time to donate?
Publicly traded securities that you hold may still have a fair market value greater than what you paid for them. If you donate these securities to charity, you will receive donation tax credits for the amount donated and eliminate the taxation on the capital gain. This provides greater tax efficiency from your donation. If you still wish to hold the donated security,a strategy to consider is to use cash or other assets to repurchase the
security, thereby increasing the cost base to the current market value and reducing future capital gains.
If the position is trading at below your book cost, a donation can still provide significant tax benefits based on the amount donated. The donation can also generate a capital loss
which can be used to reduce taxes further and offset any capital gains you may have now or in the future.
“Having your donations invested in a donor-advised fund can make them go further, particularly as any growth is within a tax-free environment in the program” says Hughes. “This can provide a stream of grants over a significant period to your chosen charities and maximize impact to the causes you care about”.
After the donation, you can stay involved in the charitable giving process as little or as much as you wish. You will be kept informed of the assets held within the account and grants made. You can advise on how amounts from the account are to be disbursed and which charities are to benefit. You have the ability to vary the amounts paid out and change the recipient charities. This ensures you control how charities you choose benefit
in a way that suits you.
If you wish to donate now, but are unsure as to intended charities, a donation to a charitable giving program can be beneficial. A donation provides immediate tax benefits
while providing flexibility in the future to decide which charities ultimately benefit. This gives you the agility to maximize impact to the causes important to you.
To determine where a donor-advised fund best fits into your comprehensive financial plan, speak with your IG Consultant.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Consultant. The IG Wealth Management Charitable Giving Program is offered together with the Strategic Charitable Giving Foundation, which operates independently from IG Wealth Management. Donations are irrevocable and vest with the Foundation. This information is general in nature and not intended to be professional tax advice. Please read the Program Guide for complete details, including fees and expenses. Trademarks, including IG Wealth Management and IG Private Wealth Management, are owned by IGM Financial Inc. and licensed to subsidiary corporations