Three ways to leave a legacy through charitable giving

As Canadians, we support causes important to us in many ways, whether it’s by giving our time, expertise or money. But charitable giving is something that we often leave until the last minute, or that we do only when asked. By taking a more thoughtful approach, you can support causes important to you and your family, maximize tax incentives and create an enduring legacy.

Here are three ways you can leave a lasting legacy:

1. Make giving part of your life

Cash donations are the most common way to make an impact on the communities you care about and it has never been easier. Many employers offer automatic payroll deductions and charitable organizations can set up pre-authorized debit options through your bank account or credit card. Not only does pre-planned giving help charities do their work, it also helps you plan your own monthly budget. And don’t forget, when making a donation to a registered charity, you will receive a tax donation receipt which can be claimed on your tax return as a credit.

Here’s another idea: If you are holding publicly traded securities (such as stocks) which have appreciated in value in your non-registered account (e.g. not held in a RRSP or RRIF), consider donating them “in-kind” to a charity. In return, you’ll get a tax receipt equal to the fair market value (FMV) of the securities donated, and you will not be taxed on the capital gains accrued on those securities as you would if you sold the securities during your lifetime.

How it can cost less to donate securities instead of cash

2. Arrange future gifts through estate planning

Deciding how to distribute your estate in advance helps ensure your loved ones or important charities will be taken care of at your passing. There are many ways to achieve this goal. You can leave a set cash legacy, direct specific assets (publicly traded shares or land, for example) or bequeath a share of the residue of your estate to a charity or charities of your choosing. Outlining your charitable wishes through your will has benefits. You can enjoy the use of your assets while you are alive, knowing that charities that are important to you will benefit in your will.

Your estate will also receive an enhanced donation tax credit. Generally, you cannot claim a credit for donations exceeding 75 percent of the net income reported on your federal tax return in any particular year. However, in the year of death and the preceding year, you may claim donations of up to 100 percent of your net income.

Another way to provide a future gift—while benefiting from your assets during your lifetime—is by establishing a charitable remainder trust. You receive an immediate donation tax credit plus income from the trust throughout your lifetime. Upon your passing, the remainder of the assets in the trust will pass directly to the charity you name as the beneficiary (bypassing probate fees).

Here’s another tax-smart way to make a future gift to your chosen charity: Donate a life insurance policy. You can donate a new or existing policy to a charity during your lifetime and receive a tax credit you can use immediately. Alternatively, you can defer the donation until you pass away, in which case your estate receives the tax credit. Either way, your chosen charity receives the life insurance benefit directly on your passing. What’s more, it bypasses probate, which can reduce costs and maintain your privacy if desired.

3. Create a lasting legacy with a donor-advised fund

If you want to establish an ongoing charitable legacy, consider a donor-advised fund. A donor-advised fund is administered by a public foundation, and provides many of the same advantages as a private foundation (without the upfront costs), complexity and ongoing administration responsibilities.

With a donor-advised fund, you contribute a certain amount, receive a donation tax credit, invest your contribution, and then make grants to registered charities of your choice. You can also name a fund successor, such as one of your estate beneficiaries, who can continue your legacy after your passing. If you don’t name a successor, the public foundation will continue to administer your fund and make grants consistent with your wishes.

So whether you’re giving a little or a lot, there are many ways you can make a meaningful difference to causes close to your heart. Plus, you can take advantage of tax incentives to maximize your giving.