With giving season upon us, the philanthropic impulse is stronger than ever. As prospective donors craft their charitable giving plan, they will endeavour to make their charitable contributions as impactful and rewarding as possible. Achieving this philanthropic goal requires careful consideration of the multitude of charitable giving options available to donors.
With more than 85,000 registered charities in Canada, there is no shortage of organizations to whom a prospective donor can donate. In addition, there are a variety of ways in which individuals can donate to their charity of choice, as discussed by Suzana Popovic-Montag in her blog, “Giving money to charity? Know your options to maximize your impact”.
An important consideration that can influence how and to whom a person chooses to donate is what restrictions, if any, they wish to place on their gift. Accordingly, as one evaluates the charitable giving options available to them, they should think about whether they want to make a restricted or unrestricted gift.
Unrestricted and restricted gifts
An “unrestricted” charitable gift refers to a gift made towards a charitable purpose that is free from any restrictions or limitations imposed by the donor. Unrestricted funds can be used by the donee charity in any way so long as the use of the funds supports the general charitable purposes of the organization.
On the other hand, donors may opt to restrict how their donations are used by the donee charity. These types of gifts are referred to as “restricted” or “donor-restricted” charitable gifts. As the name suggests, a donor places restrictions, conditions, directions or other limitations on their gift which constrains the use of the funds to a particular purpose, program, or project. In essence, a restricted gift can only be used for the specific charitable purpose to which it is devoted. Thus, restricted gifts have the effect of fettering the charity’s discretion in deciding where the donated funds will be allocated.
This article provides a more detailed comparison of unrestricted and restricted gifts: http://www.carters.ca/pub/article/charity/2006/tsc0421.pdf.
Charities have tended to prefer unrestricted gifts since their flexibility allows the charity to apply the funds wherever they are most needed. However, charitable organizations are increasingly recognizing that prospective donors may want a greater say in their charitable giving and might be inclined to give more if they have some certainty as to exactly how their gift will be spent. Restricted gifts can therefore be a useful tool to achieve one’s personal philanthropic goals, as well as to increase overall charitable giving.
Making a restricted gift
There are many ways in which a donor-restricted charitable gift can go awry, such as where:
- the precise restrictions imposed on the gift are ambiguous and the charity consequently administers the funds in a way the donor did not actually intend;
- the donor has given money to a very specific program or project within a charity which is not in need of funding or has been discontinued, and the surplus funds cannot be used for any other purpose; and
- the charity amalgamates with another organization, or dissolves altogether, and transfers its remaining assets (including the restricted funds) to another charity that has a sufficiently different charitable purpose such that the organization can no longer give effect to the gift’s designated purpose.
In light of the above, there are certain precautions that a prospective donor should consider taking to ensure optimum impact of their restricted charitable gift.
A donor should refer to a charity’s gift acceptance policy for guidance on what types of restricted gifts a donor can give to the charity. In particular, a gift acceptance policy will usually prescribe what purposes or uses a donor can restrict their funds to. Gift acceptance policies may also specify what language will be accepted to confirm the donor’s charitable intent and what procedure will be followed when the donor’s charitable intent is unclear or cannot be carried out. For larger gifts, it is also advisable to meet with a representative from the potential donee charity to determine whether the organization’s gift acceptance policy coincides with the donor’s specific philanthropic goals.
Donation agreements and testamentary documents can also be drafted to contemplate scenarios in which the designated purpose of a restricted gift cannot be brought to fruition. Specifically, donors may want to consider adding to these documents a contingency that permits their gift to be used for alternate charitable purposes, or permits the donee charity to vary the restriction to a use that most closely corresponds with the donor’s original charitable intent.
Thanks for reading and happy holidays!
I try to seize every opportunity I can to learn about art. In preparing today’s blog, I was intrigued to read about the UK’s Cultural Gifts Scheme and its relationship to estates.
The Cultural Gifts Scheme & Acceptance in Lieu allows UK taxpayers to donate important works of art and other heritage objects in return for a tax reduction, which includes inheritance tax. The donated work is then held for the benefit of the public or the nation at an eligible museum or gallery. According to this article from the Guardian, the Scheme was first introduced in 1910 as a way of allowing individuals to offset inheritance tax bills, and later, in 2013, to allow individuals to be able to make donations during their lifetime in order to offset future tax liabilities.
Any art admirer should have a look at the 2018-2019 Annual Report which provides a list of items that were received, along with some pretty pictures of the items :). It is a feast for the eyes and the senses. Some of the highlights include:
- a Portrait of the Emperor Charles V by Peter Rubens, which has gone to the Royal Armouries in Leeds
- a platinum and diamond necklace with black velvet ribbons, convertible to a brooch, made by Cartier in Paris c. 1908-1910, which has been allocated to the Victoria and Albert Museum
- 361 botanical drawings by the illustrator Florence Helen Woolward
- Bernardo Bellotto’s painting of Venice on Ascension Day, which settled £7 million of tax
- Damien Hirst’s Wretched War sculpture, given by the artist’s former business manager Frank Dunphy settling £90,000 in tax
In Canada, although art can be subject to capital gains, and possibly other taxes, it is possible for a donor to limit, or avoid the tax altogether, including by way of claiming a charitable tax credit. Individuals thinking about estate planning and/or donating art should seek the advice of a professional advisor to maximize the amount of savings.
Thanks for reading,
If you consider this blog interesting, please see these other related blogs:
While direct donations of cash or securities are still king when it comes to charitable giving in Canada, there are many other ways to donate. If you’re considering a larger gift, it pays to look at some alternatives.
A little bit of planning and a look at different options ensures that charitable gifts are made in the most tax- effective manner possible, are directed to the charities you most want to support, and are best suited to your financial situation and needs.
Here are some options to consider.
A charitable gift made in your will can be claimed against up to 100% of your net income on your final two lifetime tax returns. If the bequest is too large to claim on the final return, the surplus can be carried back to the previous tax year. There are several types of bequests possible:
- Specific bequests: an amount or specific piece of property paid out before any residual gifts
- Residual bequests: a share or percentage of the residue of estate
- Contingent bequest: the naming of an alternate charitable beneficiary in case the terms of an original bequest can’t be met
- Bequest subject to a trust: a trust established at death that typically provides lifetime income to one or more named beneficiaries, and a future gift to one or more charities.
Bequests can be tricky if not executed properly. This article provides details on the key pitfalls to avoid:
There are several ways that you can make a substantial but affordable gift using life insurance.
- Buy a new life insurance policy and name your charity as the owner and beneficiary. The premiums you pay qualify for a charitable tax receipt.
- Donate an existing policy to a charity. You’ll receive a charitable tax receipt for the fair market value of your life insurance policy.
- Name a charity as the beneficiary of an existing policy. Your estate will receive a charitable tax receipt when the proceeds are paid to the charity.
Private charitable foundation
A private charitable foundation is a trust or corporation that you establish and operate for charitable purposes. It’s a permanent institution – carrying your name or legacy, or that of a loved one – through which charitable work may be funded. Because of the costs of establishing and operating a foundation, you likely need initial funding of several hundred thousand dollars to make the structure worthwhile.
Private charitable foundations can be complex structures to establish and administer, so make sure you rely on professional advice for your foundation’s creation and operation.
Donor-advised funds are a flexible and cost-effective alternative to establishing a private charitable foundation.
You start by donating a lump sum amount – typically $10,000 or more – to a charitable gift fund administered by either a charity or a financial institution. Like a private charitable foundation, you receive a tax credit for the full amount donated, up to 75% of your net income for the year. Any excess amounts can be carried forward for up to five years to generate tax credits in those years. Each year, you direct to what charities you want grant money given and in what amounts.
Here’s a detailed comparison of private charitable foundations versus donor-advised funds:
There are a number of other planned giving options as well, from beneficiary designations of an RRSP or RRIF, to charitable remainder trusts, to charitable gift annuities.
But if you weigh all your options, and decide to make a simple direct gift, the Canada Revenue Agency’s charitable donation tax credit calculator is a great way to get an estimate of the tax impact of your donation:
Thanks for reading,
When gifts are made by an individual’s estate, can the individual’s surviving spouse share the donation credits arising from that gift?
On January 27, 2015, the Canada Revenue Agency (“CRA”) made comment on this issue with regards to the current rules, as well as the rules that will apply starting in 2016. The CRA confirmed that its practice of allowing spouses and common law partners to share donation credits will indeed continue into 2016 and beyond. This practice was also codified in the 2014 Federal Budget.
The 2014 Federal Budget did introduce substantial changes to the tax treatment of gifts under a Will or beneficiary designation. Current CRA rules deem charitable gifts made on death as having been made by the deceased immediately before death, resulting in a tax credit to the donor’s final tax return. In cases where there is an excess credit, it can be carried back and used against the income reported in the prior year.
The new rules also propose that gifts made within 3 years of an individual’s death can be allocated to the available tax credits against the tax year of the estate in either: the year the gift was made, an earlier tax year of the estate or the last two tax years of the deceased prior to death.
Executors will be tasked with making the best decision in the circumstances but will likely welcome the increased flexibility. The CRA has further clarified that the changes do not allow a surviving spouse to claim gifts made by the deceased within 3 years of their death.
It is important to remember that only donations to registered charities qualify for tax credits and that the tax consequences of a gift depend on a list of factors. More information on which charities are registered and the tax consequences of certain gifts can be found here and here, respectively. As with any estate planning, a qualified professional should be consulted before making any changes.
Thank you for reading.
“No religion prohibits organ donation.”
This is according to an article posted on the Toronto Star’s “Health Zone”. The article by Barbara Turnbull entitled “Religious leaders confront myths that stop faithful from donating organs” notes that in the GTA, just 12% of the population has registered as organ donors. This may be a factor of the GTA’s rich diversity of culture.
The prevailing belief among many religious groups is that preservation of the integrity of the body is required upon death. However, no religion prohibits organ donation, and many religious leaders from various faiths are working to change the prevailing public opinion.
The article quotes Jewish, Muslim and Hindu religious leaders: all of whom support organ donation. However, they note that much work must be done in order to overcome prevailing attitudes. “We have to change it so that it’s not only okay to do it, it’s not okay not to do it”, says Rabbi Reuven Bulka.
The article reports that 1,547 people are awaiting organ transplants in Ontario, and every three days, someone dies while waiting for a transplant. Hopefully, these numbers will change for the better.
Have a great Thanksgiving weekend. And please sign your organ donation card.
Paul E. Trudelle – Click here for more information on Paul Trudelle.
Chinese real-estate tycoon, Yu Pengnian, announced this past April that he was donating the last $500 million of his fortune to his charitable foundation on philanthropy. He was asked by a reporter, whether his children were angry about his donations and responded by stating: “They didn’t oppose this idea, at least not in public.”
|It is not uncommon for billionaires to donate their fortune. For instance, Warren Buffet and Bill Gates started a campaign called "The Giving Pledge." At that time, they had four billionaires pledge to give away half of their fortune upon their death. Now there are 40. My colleague, Nadia Harasymowycz, recently blogged on this topic, which can be found here: Leaving it all to Charity – A Good Plan or an Estate Litigator’s dream.
The idea of giving away your fortune is a strong shift from the traditional idea of passing down your wealth, from generation to generation. Why this switch in estate planning? Yu stated: “If my children are competent, they don’t need my money. If they’re not, leaving them a lot of money is only doing them harm.”
Yu’s message to wealthy families put simply: “Too many wealthy parents focus on preventing their children from failing. But in doing so, they also deprive their children of the joys of self-made success.”
Thank you for reading,
Rick Bickhram – Click here for more information on Rick Bickhram.
Normally, it is the estate trustee who has the authority to deal with the disposition of the deceased’s remains. A deceased’s stated wishes with respect to disposition, including donation, are seen as merely precatory.
However, Ontario’s Trillium Gift of Life Network Actvaries this usual authority, in a number of respects.
Firstly, a deceased’s consent to organ donation is “binding and is full authority for the use of the body…”.
Secondly, where the deceased has not specifically consented to a donation, the Act allows specified persons to consent to the donation of the person’s own body or body parts upon death. A spouse or other family members, in a specific order, are authorized to consent to such a donation if the deceased has not consented during his or her lifetime. One of the persons authorized to consent to the donation is “the person lawfully in possession of the body”. This appears to be a reference to the estate trustee. However, the estate trustee’s authority to consent is low on the list, after the spouse, children, parents, siblings and other next of kin.
The consent of a spouse or other person listed in the legislation is “binding and full authority” for the use of the body. The legislation therefore appears to make a limited exception to the common law authority of the estate trustee.
Consent is not to be given if it is believed that the deceased would have objected during his or her lifetime, or if the deceased did not consent, if someone higher on the hierarchical list would object.
Have a great weekend.