OFT’s volunteer Nan wrote a blog for this month on Legacy Gifts. Legacy giving, or planned giving, is a commitment made by a donor and documented in their Will. There are many options for you to support OFT or another charity whose cause you believe in, even after you pass. Here are some important tips to consider as you manage your estate.
Charitable giving is a powerful way to make a lasting difference in your community and beyond. Legacy gifts, or contributions made through your estate, allow you to support important causes even after you’re gone. Besides fulfilling your charitable goals, these gifts can offer significant tax and estate planning benefits. Here’s a guide to help you explore your options for leaving a legacy gift.
Bequests in Your Will
A bequest in your Will is one of the most straightforward ways to leave a legacy. Here are some benefits:
- Tax Advantages: Your estate might qualify for a donation tax credit, reducing taxes for both you and your estate.
- Flexibility: You can easily change or revoke the bequest by updating your Will.
- Percentage Gifts: You can bequeath a percentage of your estate rather than a fixed amount, keeping the gift proportional to your wealth.
However, consider these factors:
- Family Rights: Family and succession laws may require you to provide financial support to certain dependants. These laws might limit how much you can leave to charity.
- Probate Taxes: Charitable bequests could be subject to probate taxes, which are assessed before estate distributions.
Donation Tax Credit
When you make a gift through your Will or estate planning instruments (like RRSPs, RRIFs, TFSAs, or life insurance policies), the donation is generally considered to be made by your estate. This results in a tax receipt based on the gift’s fair market value at the time of transfer.
Typically, donation credits are limited to 75% of your net income. However, in the year of your death and the preceding year, you can claim up to 100% of your net income. If your estate is a Graduated Rate Estate (GRE), you have additional flexibility to use the donation tax credit across multiple years.
Planning Your Gift
Effective planning ensures your legacy gift aligns with your intentions:
- Accurate Charity Identification: Use the legal names of charities and reach out to the organization to let them know your plans and confirm that they can accept your gift for its intended purpose.
- Explanatory Side Letter: Although not legally binding, a side letter attached to your Will can help clarify your wishes and address potential questions. Consider also sharing this with your friends and family, so that they understand your wishes, and to inspire them to plan ahead for their own legacy.
- Regular Review: Update your Will regularly, especially if there are changes in your family or assets. Consult a legal advisor to ensure your Will and legacy gifts are properly structured.
Donation of Registered Plans
Naming a charity as a beneficiary of your RRSP or RRIF is another option. The charity receives the proceeds directly upon your death, avoiding probate. However, the value of these plans must be included in your income for tax purposes.
If your estate qualifies as a GRE, you can claim the donation tax credit on your terminal return. Note that donations of securities inside these plans do not benefit from capital gains elimination.
Donating Life Insurance
Donating a life insurance policy is another effective way to leave a legacy:
- Immediate Gift: Donate an existing or new policy. If you donate an existing policy, you’ll receive a tax receipt for its cash surrender value. For new policies, you’ll get receipts for premium payments, and the charity will receive the proceeds upon your death, bypassing probate.
- Deferred Gift: Alternatively, name a charity as the beneficiary of a policy while retaining ownership. The charity will receive the death benefit directly, avoiding probate.
Each method has its advantages and potential drawbacks, including tax implications and the charity’s ability to accept the policy.
Charitable Remainder Trusts
For those wanting to make a significant gift while retaining use of the property, a charitable remainder trust might be ideal. This trust allows you to transfer property while keeping a life interest. The property passes to the charity upon your death, offering immediate tax relief and allowing you to benefit from the property during your lifetime.
Setting up a charitable remainder trust involves costs and responsibilities, so consult with legal and tax advisors to ensure it fits your financial situation and goals.
Choosing a Trustee
Appointing a trustee is a key decision when setting up a trust. Trustees manage the trust and ensure its terms are followed. You can choose a trusted individual or a corporate trustee like RBC Royal Trust, which provides expertise and neutrality.
Conclusion
Leaving a legacy gift is a meaningful way to support causes you care about while also enjoying potential tax benefits. The positive impact you can make on your community can last for generations. By understanding your options and working with qualified advisors, you can create a plan that reflects your values and meets your charitable goals. Consider different methods of making a legacy gift and choose the one that best aligns with your personal and estate planning objectives.
To learn more about how you can leave a legacy gift to OFT, click here.