giving it away linda caisley, cfp cifps vancouver conference

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?

Questions?

Linda Caisley

604-785-3674

linda@foundationmanagementservices.ca