Most of us would like to have an impact on our community or causes that are important to us and leave this world in a better place than when we arrived. From what I have observed in more than 35 years as a Wealth Strategist and working with individuals and families, most people end up leaving behind more than they had expected. Charitable giving is a perfect tool to help meld many significant opportunities together. Those who have built their wealth beyond what is needed for their own financial security should consider a conscious giving process. There are several ways to do so, including donating publicly traded stocks, private equity, life insurance policies, or simply through cash donations. 

Donating Publicly Traded Stocks 

While most individuals will donate the profits achieved from their publicly traded stocks after paying capital gains tax, it is important to know that the CRA allows you to donate them directly to a registered charitable organization. In doing that, you don’t have to pay the tax on the capital gains, and you receive a more significant tax credit based on the stock’s total market value at the time of the donation.

Donating Life Insurance Policies 

Life insurance is another great tool to use for charitable gifting. Individuals often purchase life insurance policies for the traditional purpose of paying off debt and replacing income for their families if they were to die unexpectedly. From what I have seen, many people hold these policies for years and let them lapse later in life when they realize the traditional need for coverage is gone. Instead, you can donate your policy directly to a charitable organization, and in turn, receive a tax credit based on the total market value of your policy. Charitable organizations may even pick up the funding of your life insurance premiums in order for them to receive a more significant future benefit. 

Donating Private Equity 

Many charitable organizations are also starting to accept private equity donations when the charity can readily turn them into cash. In more complicated scenarios where families have private operating businesses or investment companies that they would like to hand down to the next generation, there are also great planning ideas around philanthropy. In this instance, you can donate shares in your private company to a charitable organization and use a corporate-owned life insurance policy to allow the next generation to repurchase those shares from the charitable organization. Strategies like this should be reviewed in the context of your planning by you and your financial advisors.

Cash Donations 

Making cash donations to a charity may have a similar or more significant impact on your community than your income tax will. Donating to where you see the most need in your community will allow you to use a 50 – 54% tax credit to reduce your taxes. In addition to cash donations, many families wonder how they can protect their children and grandchildren from receiving too much, or maybe their children are financially well off and don’t need to inherit vast sums of money. Whatever it is, there are many ways to set up family funds or foundations that don’t have to be complicated. You can do this while you are alive and enjoy working together with your family to give back to the community in a meaningful way. You can combine this strategy with any of the others mentioned above to create efficiencies.

Regardless of your intention, getting started with your philanthropic goals starts with financial modeling and a discussion around your family values and vision. If you’re interested in including charitable giving into your estate or financial plan, reach out to one of our Wealth Strategists who are happy to help you on this journey. 

- Rick Green CFP, CLU, TEP, CH.FC, MFA, FEA

Wealth Strategist, Partner