By Tom Kaufman
“It is more rewarding to watch money change the world than to watch it accumulate.”
Planned giving is simply making a plan today to ensure that your charitable gifting goals will be met. The two most common ways this is accomplished is through a bequest in your will (you do have a current will don’t you?) or with the proceeds of a life insurance policy. One of the truly great things about planned giving is that if designed well, a planned giving strategy can be used to allow you to effectively “give more with less”.
When you gift “cash” to a charitable organization, you are giving tax paid money. In other words, you paid taxes to the government when you earned that money whether it was a salary, a bonus or investment income. While we all must pay our taxes, we are well within our rights to look for legal ways to reduce paying tax. Tax planning is a key element to planned giving as shown in the following example.
You have 100 shares of a publicly traded company that you purchased for $10.00 per share. Today they are trading at $20.00 per share. You decide to gift $2,000.00 to a charity. So you sell the shares to generate cash to give to the charity. The Canadian government however will deduct capital gains tax from your appreciated investment. Depending on your personal tax rate, you will likely have between $1,900.00 and $1,750.00 cash which you can donate. You will then receive a tax receipt from the charity once you donate that amount.
If however, you simply gift the shares to the charity, the government does not take any tax from you on the capital gains and the charity (which legally must sell the shares right away) will therefore end up with $2.000.00 in cash and you will get a tax receipt for $2,000.00. A bigger positive for both parties and at no additional cost to you: giving more with less!!
Another key element to planned giving is using life insurance. You have decided you would like to give $50,000.00 to a charity over your life time. Being 60 years old, you are comfortable planning on giving $2,000.00 each year for the next 25 years of your life. The $2,000.00 every year is tax paid money. If you pass away prematurely, using the $2,000.00 annual giving strategy you will not achieve your life time goal.
If you took out a $50,000.00 life insurance policy you could pay $1,765.00 of tax paid money every year in premiums for 20 years. After 20 years you don’t have to pay any more premiums…ever! So give $2,000.00 for 25 years (total $50,000.00) and hope you live long enough to see your goal met or give $1,765.00 for 20 years (total $35,300.00) and regardless of when you pass away be assured of having your lifetime charitable goals achieved. You have the choice of annual tax receipts for the premium paid that year, or for a single tax receipt for the full value of the death benefit to your estate when you pass away.
With a well-organized planned giving strategy, you indeed can give more with less.
If you would like to learn more about how to organize a planned gift you can visit Tom Kaufman's page here.
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