The Role of Philanthropy in your Financial
Plan
by Neil Menzies
For many, charitable giving is a key component
of financial and estate planning.
In our financial and estate planning discussions with our clients,
we are finding the topic of charitable giving is surfacing more
and more often. It is an essential part of aligning your personal
and financial goals. This area of financial planning is getting
greater attention these days. In June 2006, Warren Buffett announced
he would be donating $31 billion to the Gates Foundation. Although
Mr. Buffett is not currently a client of ours, he does have something
in common with many of our clients.
The idea of giving away money earlier is becoming more common.
In the past, bequests through one’s estate were more the standard.
Today, some of the families we work with, prefer to actively shape
a personal legacy during their lifetimes and see the benefit of
their contribution.
People want to allocate their dollars where they feel they will
make the greatest difference. They expect transparency and accountability;
they also want to be involved in how their donations are spent.
They want to solve specific problems, not funding services, and
they want measurable results.
In 2006, there have been some increased tax incentives associated
with giving. One recent enhancement relates to how capital gains
are assessed. For example, you can now donate securities to a charity,
without triggering any capital gains taxes. This new legislation
took effect May 1, 2006, and applies to most publicly listed stocks,
bonds, and mutual funds. It does not apply to gifts of real estate,
art or private shares.
We are now able to assist you in establishing your own charitable
foundation with as little as $25,000. This can be done in a very
cost-effective fashion, with you providing the direction as to what
charities you wish to support and when.
Bob and Betty Hamilton are clients of ours. They are in their early
60’s and are financially independent. In a recent meeting,
we discussed their personal philosophy about charitable giving.
Historically, they have given to various charities, responding to
people’s requests for support. Over the last five years, they
have been financially supportive of two organizations in the Downtown
Eastside of Vancouver. In our discussion, the idea of developing
a plan around charitable giving was of interest to them. They want
to continue making contributions to their community. They feel compassion
to people in need.
Using a Charitable Giving Fund, Bob and Betty were able to create
their own charitable foundation. They chose to call it the Hamilton
Charitable Giving Fund. They made an initial contribution of $75,000,
and received a charitable tax receipt for the same amount. Each
year, they plan to provide grants of 3-5% of the fund’s value
to various causes they wish to support.
Now, Bob and Betty have a clearly laid out plan and strategy with
regard to their charitable giving. Previously by default, their
charitable giving is now by design.
Some interesting statistics from the 2004 Canada Survey of Giving,
Volunteering and Participating:
- 85% of Canadians age 15 and over made financial contributions
to a charity
- The average donation was $400
- Religious organizations received the bulk of donations (45%),
followed by health organizations (14%) and social service organizations
(10%)
- 21% of Canadians accounted for 82% of the total value of all
donations
- Women were more likely to donate than men, but men gave larger
average donations
- If Canadians gave a comparable percentage of aggregate income
as Americans do, Canada’s charities would have an additional
$8 billion in resources.
With over 80,000 charities in Canada, it is important to complete
a thorough evaluation, prior to making a financial contribution.
Here are three questions to ask:
- Is the charity registered?
To find out if the organization is a registered charity, so a
search on the Government’s website at www.cra.gc.ca/tax/charities.
- Is the charity efficient?
Find out how the donations are used. Charities generally should
spend no more than 15% of revenues on administration and fundraising
efforts.
- Is the charity effective?
What is their mission? Short and long-term goals? What progress
has been made? Goals should be concrete rather than abstract.
This article is solely the work of Arbutus Financial
for the private information of our clients. Although we are registered
Mutual Fund Representatives with Dundee Private Investors Inc. (“Dundee
Private Investors”), this is not an official publication of
Dundee Private Investors. The views (including any recommendations)
expressed in this newsletter are those of the author alone, and
they have not been approved by, and are not necessarily those of,
Dundee Private Investors. |