Cash Donations
There are various ways of making a donation under your will. A cash gift is the simplest and the most obvious. However, if the gift is large, you need to make sure that there will be enough liquid assets in your estate to enable your executors to carry out your wishes. For example, if you decided to leave $100,000 to your favourite charity, but at the time of your death, your estate consisted only of cash and term deposits amounting to $50,000, plus various parcels of real estate, your executors might have to sell one of the properties in order to raise the funds necessary to fulfill the donation bequest. This may not be what you had in mind.
Gifts in Kind
Instead of a cash gift under your will, you could provide for a gift of tangible property (referred to as a gift in kind) to be made to one or more charities. For example, you might consider donating valuable paintings to a public art gallery; a donation of scenic real estate to a provincial conservation authority; or perhaps donating a car to a hospital foundation for its use in transporting patients.
Most gifts in kind are eligible for the same donation tax credit as a cash gift. In the case of a gift in kind, the donation tax credit is based on the fair market value of the property that is donated. Normally, it is necessary to obtain an independent appraisal in order to substantiate the fair market value of such a gift, so as to enable the charitable organization to issue an official donation receipt. With a gift of publicly-traded securities, the fair market value is readily available from stock market quotations on the date the gift was received by the charity.
Gifts of Certified Cultural Property
There are also special tax incentives for gifts in kind that fit the description of certified cultural property. A certified cultural property is a national treasure with cultural significance in Canada, for which a certificate has been issued by the Canadian Cultural Property Export Review Board. An individual who makes a donation of certified cultural property to a designated cultural institution is entitled to a donation tax credit based on the fair market value of the property. However, whereas ordinary gifts in kind can result in the donor having to recognize a taxable capital gain, a gift of certified cultural property is exempt from capital gains taxation. Furthermore, if the value of the property is less than the donor’s cost, the donor is allowed to claim a capital loss (within the normal limits).
Using Life Insurance for Charitable Purposes
Some people are worth “more dead than alive” to the charities they support, because they have obtained additional life insurance and designated the charity as the beneficiary. If you were to take out a life insurance policy and irrevocably designate a charity as the beneficiary of the policy, the insurance premiums paid on the policy would be viewed as charitable donations for income tax purposes, and would be eligible for the donation tax credit. However, you should realize that an irrevocable beneficiary designation means that the charity cannot be removed as the beneficiary under any circumstances.
Charitable Gift Annuities
Another donation technique involves making a cash donation to a charity, in return for a life annuity. Perhaps you have your mind made up that you want a capital sum to go to a specific charity after your death. You cannot make the donation now because you need to keep the funds invested to provide you with interest or dividend income to live on.
A gift to a charity during your lifetime in return for a life annuity would produce tax savings, but the tax results are somewhat unusual. Ask the charity in which you are interested about their “planned giving” programs.
Charitable Remainder Trusts
In some situations a trust can be used to make a donation of property to a charity. A charitable remainder trust involves the creation of a trust under the terms of which a particular charity is named as the capital beneficiary and the donor is named as the income beneficiary. The donor would then transfer one or more assets to the trust. The trustees of the trust would hold the legal title to the property under the terms and conditions spelled out in a written trust agreement. As income beneficiary of the trust, the donor could be entitled to all of the income that is earned on the funds that are invested within the trust. The trust agreement would specify that upon the donor’s death, the trust’s assets are to be transferred to the capital beneficiary charity.
Alternatively, such a trust might be used to hold real estate that is intended to be donated to the charity after the death of the donor. Under the terms of the trust agreement, the donor might retain the exclusive use of the property during his or her lifetime.
