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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

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Giving it away l.jpg

Giving it Away

Linda Caisley, CFP

CIFPs Vancouver Conference


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Topics

  • Triggers

  • What is a Gift?

  • Giving Options & Types of Gifts

  • Receipts & How They’re Used

  • Recognition and Stewardship



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Philanthropic Triggers

  • Age

  • Values/beliefs

  • Financial situation

  • Being asked to give

  • Being told to give


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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


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Research 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

Values/Beliefs


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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


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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


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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


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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


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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


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Altruist

  • See themselves as selfless givers; giving is a moral obligation

  • Often want to remain anonymous

  • Usually focus on social causes

  • Rarely use advisors


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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


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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


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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



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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


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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


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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



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Options

  • What is a gift?

  • Source of Donation Money

  • Ways to make gifts

  • Types of Gifts


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Source of Donation Money

  • Cash based gifts

  • Asset based gifts


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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


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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)


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Ways to Make Gifts

  • Directly to the charity

  • Through an umbrella charity

  • Through one’s own private foundation


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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


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Types of Charities

  • Charitable Organizations

  • Private Foundations

  • Public Foundations


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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.


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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


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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.


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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


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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


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Types of Gifts

  • Securities

  • Life insurance

  • Charitable remainder trusts

  • Donor advised funds

  • Private Foundations


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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


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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


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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


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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


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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?


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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


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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


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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


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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


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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


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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


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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


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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


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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)


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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)


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DAF Benefits

  • Donor doesn’t have to worry about administration of the fund

  • Fund will carry on after the donor’s death


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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?


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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


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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


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Private Foundation Benefits

  • Donor can bring family into philanthropy

  • Can survive donor’s death

  • Can control management


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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


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Things to Clarify

  • What’s the donor’s need for control level?

  • What kinds of assets are going to be put into the foundation?



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Tax Credits for Gifts up to $200

  • Federal Tax Credit Rate: 15%

  • Provincial credits range from 6.05% (BC) to 11% (Sask)


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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


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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


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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


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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


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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)


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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



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Recognition

  • Recognition is the kind of thank-you the donor receives for the gift

    • A letter

    • A plaque

    • A building named after you


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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


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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?



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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


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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?


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Questions?

Linda Caisley

604-785-3674

[email protected]


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