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Tips on planning a lasting legacy

Seven things you need to know about including charitable giving in your estate plan

When retired farmers Scott and Laura-Lee Lewis of York, P.E.I., shared their plans to bequeath $500,000 from their life insurance policies to two local charities, their generosity made national headlines.

In a 2019 article in The Charlottetown Guardian about their planned giving, the couple said, “As business owners, we felt giving an insurance policy was the most affordable way for us to make a substantial gift and name the charity the owner and beneficiary of the policy.”

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While an estimated 20 per cent of Canadians donated $9.7 billion to charities in 2017, only a tenth of us plan on incorporating charitable contributions in our estate plans.

Farmers might be the exception, according to Manitoba farmer and family farm coach Elaine Froese.

“Farmers tend to value stewardship, legacy and heritage,” Froese says. “Farmers are deeply rooted and grounded in their communities… and place a high value on helping their communities thrive.”

Be forewarned, though. Incorporating charitable giving into your estate plan is not as simple as designating funds to your favourite non-profit organization. Here are seven key points to consider:

1. Determine how much you can afford to give

Break out the calculator. You’ll need to crunch the numbers to figure out the value of the assets left in your estate after all of the taxes are paid. Of the 48 per cent of Canadians with wills, 18 per cent included charitable legacies in their bequests.

Rick Braun-Janzen.
photo: Supplied

Froese recommends working with a financial planner to run the numbers. It’s essential to ensure that charitable contributions are not made at the expense of the future of the farm. Leaving the next generation with debt in order to make charitable gifts could put your family in jeopardy, she says.

Even if there is just a little left over after debts and estate taxes are paid, Rick Braun-Janzen CFP, director of gift planning for Abundance Canada, a donor-advised charitable foundation, encourages farm families to consider incorporating donations into their estate plans.

“You don’t need a certain amount of money before it makes sense to give to charity,” he says. Plus, he adds, “There are strategic ways you can give that make more sense from a tax and legal perspective.”

2. Talk to your family

Talking about the specifics of your estate plan might be uncomfortable but Froese cautions against keeping the details a secret. Your heirs should not learn about your charitable bequests after your funeral.

There’s a difference, though. This is a conversation, not a negotiation. Some heirs might think they should inherit the whole lot, but talking about your plans for charitable giving isn’t meant to open the door for them to push back. Remember, it’s your decision.

Says Froese: “The bottom line: Let there be no surprises.”

3. Choose the best way to give

Cash might be the most obvious way to donate to charities but Bud Arnold, CPA, accountant and tax partner with Baker Tilly Canada Cooperative, suggests working with your tax professional to explore all of the options.

Bud Arnold.
photo: Supplied

“Farmers may not have excess cash as part of their investment portfolio,” he adds. “Most of their assets are tied up in farmland, quotas or farm equipment… so we have to consider how you can make a difference with charitable giving.”

You may choose to donate other physical or financial assets such as equipment, real estate, stocks and securities, or life insurance policies.

Establishing a charitable trust or private foundation may also provide advantages. In P.E.I., the Lewis family opted to establish an endowment that allocates earnings from their $500,000 endowment to the Queen Elizabeth Hospital Foundation and the Community Foundation of PEI, an organization that manages 80 funds, including five non-profits that will receive funds through the endowment.

4. Inform charities of your bequests

While charities will happily accept bequests — even if they come as a surprise — notifying charities that they are included in your estate plan has significant advantages.

While larger charities often have the knowledge to accept “alternative” donations such as equipment or real estate, smaller charities might lack the resources to accept gifts outside of cash or stocks.

If you wish to leave appreciated assets to a smaller organization, you may need to partner with a donor-advised fund like Abundance Canada or Canada Gives to handle the bequest — and that knowledge can only come from talking to the charity about your plans.

Providing advanced notice also helps charities with future planning.

“Charities will want to have a conversation about where the assets will make the most impact and whether there is a particular project you’d like to direct your donation toward,” says Arnold. With bigger donations, such conversations are even more important.

5. Consult a tax pro

Designating a portion of your estate to charity could offer significant tax advantages. In addition to lowering your estate taxes, you may be able to deduct the annual premiums of a life insurance policy if a charitable organization is listed as the beneficiary, or you may avoid capital gains tax by donating appreciated stocks to charity.

Your accountant can review your will to ensure that you’re not missing good tax opportunities or creating tax problems, says Arnold.

“Charitable giving should always be driven by the desire to leave a legacy in accordance with your values,” Arnold says. That said, however, it only makes sense to be tax-smart.

6. Assess the legal implications

Your will is a legal document and it must be written in clear, legal terms to ensure that the bequest will be made according to your wishes — and without litigation.

A lawyer can advise you on all of the legal implications of your estate planning decisions and manage all of the details. These could include verifying that organizations are registered charities with the Canada Revenue Agency, outlining restrictions related to how your donation may be used, and establishing charitable trusts to manage funds.

Arnold offers one piece of advice: “Name backup charities,” he says. “If a charity merges, changes its name or no longer exists when you die, designating backup charities takes the responsibility off of the executor to choose a replacement charity.”

7. Keep estate plans updated

You need to regularly review your estate plan to reflect changes in assets, beneficiaries and your relationships with charities.

If you want your financial resources to be part of a lasting legacy in your community, it’s never too late to amend your will to include charitable giving, says Braun-Janzen.

“There is a misconception that charity isn’t something that can be incorporated into your (estate) plan,” he says. “We envision a world where everyone gives generously.”

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