How to Include Charitable Giving in Your Financial Plan

by Invisor Last updated on December 20, 2017 Tags: Save Well

Photo by Roman Kraft on Unsplash

There’s no question that charity is most on our minds during the holidays. There’s no shortage of office food drives, calls for volunteers at local soup kitchens, and donation boxes scattered throughout the mall. Whether you choose to participate in these activities, or you’re considering donating to a charity through the holidays and beyond, there are many ways to give back, no matter your budget.

If you’re feeling apprehensive about the cost of charity, consider these options on how to include charitable giving in your financial plan. You might be surprised at some of the items and their benefits.

Ask About Tax Receipts

If you’re thinking about giving a monetary donation to the charity of your choice, do your research and see if you’ll be provided with a tax receipt. While you shouldn’t expect a tax receipt when donating clothing to a shelter, you can expect one from most registered charities.

Charitable donations are especially appealing for Canadians who can take advantage of the Charitable Donations Tax Credit (CDTC). You may be eligible for a tax receipt if:

  1. Your donation is a gift for which you don’t receive anything in return. If you do receive something in return, you’ll only be able to claim the difference (i.e. value of the gift you received subtracted from your donation).
  2. The charity you are donating to is a registered charity that can issue tax receipts

If you’ve met the eligibility requirements, you’ll be able to claim the donation on your tax return. Generally, you will be credited 15% of the first $200 in donations, and 29% of the remainder of your annual donations – although these differ between provinces. This is one of the most popular ways to include charitable giving in your financial plan, as both you and the charity benefit from your monetary donation.

Donate your Stocks

If you have a little more to give, consider donating your securities. When you cash your shares, you pay tax on the capital gains of those shares, leaving you with less money to donate. This means the charity receives less, and you will claim less for your charitable tax credit. However, if you donate your securities directly, the charity of your choice will receive a larger donation and you’ll receive a larger tax credit. Not only that, but you’ll also reduce concentration risk in your portfolio by donating large holdings and improving your diversification strategy. Note that this type of donation can only be done with securities held in a non-registered account. 

Use your Life Insurance Policy

Life insurance can be used to accomplish charitable giving strategies. Two of the most common approaches are used when individuals own the insurance policy (as opposed to corporate-owned insurance policies); these are gifting the insurance policy and gifting the insurance benefit.

Gifting the Policy

This common strategy involves gifting a new or existing life insurance policy to a charity. The charity becomes the owner AND beneficiary of the policy, meaning they receive the life insurance proceeds when you die. The charity can generally issue a charitable receipt for the value of the policy at the time of the transfer and for any premiums paid by you on behalf of the charity. Since the charity is the owner of the policy, even though the donor is paying the premiums, there is no charitable receipt issued for the proceeds paid to the charity when you die. This approach is used for donors who would prefer to have some tax relief today.

Gifting the Life Insurance Benefit

This strategy involves you, the donor, retaining ownership of the policy and continuing to pay the premiums, but naming the charity as the beneficiary (or partial beneficiary) of the proceeds received upon your death. The charity would then issue a charitable tax receipt for the value of the proceeds received to the estate of the life insured. You would not receive any charitable receipts during your lifetime, but your estate would receive a larger tax receipt when you die. This strategy is used when individuals anticipate a large tax liability upon death and choose to make a charitable gift to offset some or all of this income tax liability.

If you would like to discuss options for using life insurance as part of your charitable giving strategy, contact your advisor and share your objectives with them.

Volunteer your Time

If these options don’t fit in your financial plan, there are many great ways to help the charity of your choice. One of the most valuable things you can give is your time. Is there a volunteer group affiliated with your place of worship? A community centre that could use some extra hands? A shelter that’s looking for dog walkers? Not only will you be helping someone in need, you’ll have the opportunity to meet new people and feel good about how you’re spending your time, too.  

The holidays are synonymous with positive feelings of giving and giving back, and we often feel more generous during this season. Take this opportunity to think about your charitable giving strategy and how you can include it in your financial plan. If one of your concerns is the legitimacy of charities and how your money is being allocated, do some research. There truly are no reasons not to give to charity. We hope this post inspires you to consider including charitable giving in your financial plan!

As part of our charitable giving strategy, Invisor has donated to SatefyNet Children and Youth Charities this holiday season.

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