Save Tax, Give More

Strategic philanthropy minimizes taxes and allows people to transition from “success” to “signif icance” – yet many advisors don’t know the myriad ways it can be applied. In this new column, I’ll share tried-and-true strategic philanthropy concepts drawn from 31 years of professional practice helping successful business owners, affluent families, retirees, and professionals.

To start with, I want to help you recognize the people we call Accidental Philanthropists. These are clients who have accumulated considerable assets but don’t yet realize that strategic philanthropy can help them both pass along more wealth to beneficiaries and leave a sizeable charitable legacy.

How does strategic philanthropy achieve that? In every estate, there are three possible heirs: family, charity, and the Canada Revenue Agency (CRA). The “aha” moment for many of my clients comes when I explain they can pick two out of three.

Of course, most choose family and charity.

These custodians of family wealth for future generations become philanthropists when we show them how to make their legacy about family and charity, instead of a big tax bill.

WHO’S MOST LIKELY TO BECOME AN ACCIDENTAL PHILANTHROPIST?

1. Widowed, divorced, or single. Without proper planning their assets will be highly taxed (at 26% to 70%) when they die. In Ontario, for example, a $1-million RRSP or RRIF shrinks to $460,000 when there is no spouse to receive a tax-free rollover. Strategic philanthropy can preserve that money for family, with charitable giving dramatically reducing the tax liability.
2. People who have sold (or will be sell-ing) a business, investment real estate, or appreciated securities. The year of a big capital gain is the best time to make a large charitable donation to offset taxes.
   And, with life insurance, these people can eventually recapture all the donated money and leave it to their family.
3. People who have done (or will be doing) an estate freeze. These clients can donate private company shares to convert taxes into a substantial charitable legacy and get money out of their company on a tax-free basis for heirs like children and grand-children.
4. People with a private foundation or donor-advised fund (DAF). Most don’t realize that life insurance can be purchased, owned, and paid for using foundation or DAF funds.
5. People who have already specified a charitable gift in their will. There are better strategies available that amplify their generosity in a more cost-efficient and tax-efficient manner.
6. People with a large tax bill due in April and appreciated non-registered securities. They can convert taxes into charity by depositing appreciated securities (or cash) into a foundation or DAF.
   They’ll pay no capital gains taxes and use the charitable receipt to offset current taxes due. The donated money is now a legacy fund, professionally invested and available for future giving to registered charities in Canada.
7. People with existing life insurance policies they no longer need. Donating a permanent or term insurance policy can generate a charitable tax receipt for the fair market value to offset taxes. When donors continue to pay the premiums, they can get donation receipts each year.
8. People who will have an estate tax bill on death. One hundred per cent of estate taxes can be mitigated through charitable donations. Clients should consider acquiring a life insurance policy for twice the anticipated estate tax bill. Designating a charity, foundation, or DAF as the beneficiary generates a donation receipt that mitigates estate taxes, and the cost is pennies on the dollar – or less if you use a financing arrangement.

STRATEGIC PHILANTHROPY MAKES EVERY GIFT GO FURTHER
Even on a smaller scale, it’s often possible to give more for less. Most Canadians give to charity!using cash, cheques, or credit cards, but these are the least tax-efficient ways to donate. Donating appreciated securities is just one of more than 20 more cost-efficient, tax-friendly ways we’ve identified in a one-page PDF that you can pass along to your clients.
We’ve also identified 15 core life insurance strategies advisors can use to create transformational gifts that make a major difference in people’s lives – ask us for this PDF, too. One of the main tools we use is tax-exempt life insurance. Used appro-priately, it works magic when applied to philanthropy.
We want to see strategic philanthropy used more widely because it benefits both families and charities – and we have ambitious philanthropic goals of our own. We’re aiming to develop a national network of 100 advisors and charities committed to working with clients and donors to create $10 million of planned gifts annually. That will add up to Si billion a year. Were confident we can get there. In just the last few months, more than a dozen professionals and charities have stepped forward to join.
Let’s do good and do well together.

MARK HALPERN, CER, TEP, MEA-P