Smart sharing

Andy Erickson discusses the tax implications of making financial donations.

Giving is good. Good for your community, good for your charities, and good for those who benefit from your charitable acts.

And to make the sharing of your bounty even more appealing, giving can be good for you, too.

Your philanthropic gift is always important, but to make the best use of your contributions, to preserve your legacy, and to minimize taxes and/or estate fees, a sound charitable giving plan is the way to go. Let’s look at your options.

Name a charity as a beneficiary – The simplest option. In your will, leave a bequest of money or gift in kind to a recognized charity and your estate will receive a charitable donation tax receipt that could reduce or eliminate the income tax on your final return, and possibly on the immediately preceding return.

Establish a donor advised fund – As the donor, you receive an immediate tax receipt for all contributions made to the fund and you also retain the rights to select the charities that receive your fund’s annual income.

Establish a charitable remainder trust – This is an irrevocable trust that can hold assets such as cash or mutual funds. All the interest and dividends are paid to you as taxable income. Upon your death, the trust assets go immediately to your chosen charity. When the trust is established, you receive a donation receipt for the ‘remainder interest’ of the trust.

Donate a life insurance policy while you live – With this option, you ensure your charity will receive the total death benefit under the policy while you enjoy certain tax credits.

Donate publicly funded stocks or securities – You will pay no capital gains tax on donated securities and will receive a tax receipt for their full value.

Establish a charitable life annuity – You will continue to receive a lifetime income from the donated assets. Much of the annuity cash flow is tax free and you’ll receive a charitable receipt for a portion of the donations based on the amount of annuity income you receive and your life expectancy.

Establish a private foundation – If your donation is very substantial, this option allows your name or family’s name to be permanently associated with the causes you’ve chosen.

Andy Erickson is the division director with Investors Group, Vernon. This article is provided for information purposes only. Consult with a professional advisor before implementing a strategy.

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