If financial planning is the art of wealth accumulation then estate planning is the science of its successful distribution.
Planned Giving is where the donor’s legacy thinking and objectives meet the tax efficiencies supported by the Canada Revenue Agency (CRA).
CRA’s definition of a gift:
“Voluntary transfer of property without valuable consideration”
Is the perfect answer to Dag Hammarskjold’s philanthropic muse that:
“The only value of a life is its content – for others.”
Included are gifts such as cash; gifts in kind like stocks and real estate and a right to a future payment, such as life insurance or annuity proceeds.
CRA designates a special category for certified cultural property – artifacts and significant works of art.
All gifts represent either a current or deferred benefit to the Charity.
Generally speaking such gifts can not be undone – so it is imperative that the donors undertake an appropriate amount of planning from the perspective of their family and with their own advisors.
Why so? Surviving beneficiaries of an estate may contest a large charitable bequest that in essence diminishes their net share of the inheritance.
Similarly it is imperative to understand that CRA has rules that disqualify certain things as charitable gifts i.e. services or time; any part of a donation from which personal benefit was received or gifts of very little value, such as used furniture, etc.
One of the most popular forms of planned gifts is a Will Bequest which proves the exception to the above rule. Donors can be quite generous to a charity in their will knowing they will have no further need of the money. Bequests can save the estate a great deal of tax and are flexible in that the donors can revoke the gift simply by changing their will. Rather than bequeathing a strict dollar amount it is also possible to donate a percentage of the estate in order to keep the gift in line with its original intent as the assets of the donor change.
Taxes, creditors and estate administration costs can erode the value of the estate, ergo the bequest. Charitable bequests do not avoid probate, a public process, which can make a private intention subject to public record. Will bequests can be challenged/contested in Court by dependent family members. Depending upon the donor’s income in the year of death and the preceding year the estate may not receive full value for the tax credit originally anticipated by the bequest. Often the charity is unaware of the bequest and in any case cannot access or utilize its value on its balance sheet as the gift is deferred and subject to change by the donor.
Nevertheless if giving is a journey and the average Canadian gives 7 times in their lifetime; then perhaps the best thing about a bequest is that it encourages the donor for the first time to set sail – remembering what Christopher Columbus said:
“You can never cross the ocean unless you have the courage to leave the shore.”
