We can all contribute to our community through charity, whether through monetary donations or through volunteer work. We can also make a difference through legacy giving, but including a charitable gift as part of your overall estate plan can feel overwhelming, especially since you also need to decide how to allocate your assets among your beneficiaries.
Upon your death, your estate will likely be taxed heavily. A charitable gift in your Will may reduce the amount of taxes owed at death, and in some cases even eliminate them, with no impact on the amount of money left for heirs.
How is this possible? Simple. In response to a significant need for tax support of charities, the Canadian government has recently established a special program to assist people in making charitable donations from their estates, yet many Canadians are not aware of these incentives.
How it can work:
Take the case of Dermot and Carol, who are both in their mid-60s. They work hard to pay their bills and they follow a disciplined approach to tax planning. A recent financial projection showed that the couple would have an estate worth close to $3M when they passed. They were elated until learning that the estate tax bill on their estate would be more than $734,000. They would have to pay more than a quarter of their hard-earned money to the government!
Dermot and Carol were not accustomed to making charitable donations beyond the kinds of donations usually made with their chequebooks. When they did give to a charity, they made donations to causes that touched their hearts. They never considered that there are ways you can structure charitable giving so that you give less tax to the government. Charitable donations are not just for goodwill and it isn’t just giving away a portion of your estate. It can actually mean leaving more to your closest beneficiaries.
The process involves leaving a large gift to your favourite charity in your Will and replenishing your estate with a life insurance policy. Dermot and Carol had not considered this. The couple can give $750,000 in their Will to the charity of their choice, which will allow them to receive a donation tax receipt that will reduce their taxes by $334,000.
A similar result for you could mean you can make a significant contribution to a cause you admire, reduce the taxes on your estate, and your beneficiaries will receive a slightly larger inheritance. The CRA gets less and they actually encourage this type of donation. It gives you, as the owner of the estate, a way to directly benefit a cause you feel passionate about, while reducing the tax burden on your beneficiaries.
If you would like to learn more about the tax benefits, talk to your lawyer and visit www.willpower.ca for more information on how your estate can help the causes you support.