Giving to charity: don’t let it be an afterthought
Many people include charities within their estate plans. However, more often than not, the charities are used as a “catch-all” to receive assets of the estate in the very unlikely chance that no one in their family survives a common disaster (i.e. the failure clause or common disaster clause that many estate planning practitioners include in wills). The gifts to these charities are therefore nothing more than an afterthought.
What is often forgotten is that gifts to charities not only benefit society as a whole but may also provide your estate (and ultimately your beneficiaries) with many tax benefits, which may include: Donation tax credits — the amount of credits are calculated at 15 per cent on donations below $200 and at 29 per cent on donations above $200; importantly, if the estate is classified as a Graduated Rate Estate, the executor will have the flexibility to apply these credits to varying time points of the administration of the estate to maximize their benefit;
Zero per cent inclusion rate — once again, if the estate is classified as a Graduated Rate Estate, it may be beneficial to donate certain types of property that have a capital gain (i.e. the tax that arises when the market value of an asset is greater than the price at which it was purchased) as the rate of tax is reduced to zero.
It is important to carefully consider your estate plan to avoid common pitfalls. For example, executors must be given the powers directly within a will to transfer stocks and mutual funds in the form they are in, otherwise the transfer of stocks or mutual funds will be prohibited and the potential for tax savings lost. Additionally, some non-profit organizations are not classified as “registered charities” by the Canada Revenue Agency, in which case donations to them will not generate any tax benefits.
Finally, depending on your circumstances and how your assets are structured, you may also want to consider gifting assets through vehicles other than your will, such as designating charities as beneficiaries on insurance policies (i.e. your estate will receive a lump sum donation tax credit) or making them the policy owner (i.e. you will receive donation tax credits with each premium payment), which can generate donation tax credits during your lifetime.
Speak with an experienced estate planner today about your options and make charitable giving an integral part of your estate plan.
What is often forgotten is that gifts to charities not only benefit society as a whole but may also provide your estate (and ultimately your beneficiaries) with many tax benefits.