Planned Giving:

Presented By:

DeWayne Osborn CGA, CFP

Lawton Partners Financial Planning Services Limited

[email protected]

Planned Giving:Planned Giving:“What are the strategies that work for an advisor”

Planned Giving:Planned Giving:

Need to Build the “Planned Gifts Toolbox”

Understand what charities areUnderstand the rules that

govern themUnderstand the lawConstruct easy to follow

examples

•Charities – What are They?•Planned Giving – What is it and what are the pre-budget 2004 rules?•Discuss Budget 2004 – Issues•Examples of common gift strategies = How you can help and make money•Q & A


Presentation Overview:


0

5000

10000

15000

20000

25000

30000

35000

Year 2000

Welfare

Health

Education

Religion

Community

Other

Source: CRA

Charities – What are They?

Planned Giving:Planned Giving:Charities – What are They?

ITA 149.1(1)ITA 149.1(1)

Three Types:

Charitable Organizations

Public Foundations

Private Foundations

Planned Giving:Planned Giving:Planned Giving – What is it and what are the rules?

A gift that maximizes the donor’s philanthropic intent at a minimum cost (typically tax savings);

The end product of careful consideration of all the options available to the donor;

Can be outright or at death; Generally not well understood by the charitable

community, the donors, or CRA (Finance).CRA

Planned Giving is:

Marriage of the financial and charitable sectors


Deemed minimum cost and market value of $1,000; Gifts of property over $1,000 must be valued by

independent expert; < $1,000, or too expensive to use professional, then

may be valued by knowledgeable person from the charity;

Be careful with property created to be donated (e.g. preferred shares).

Special Rules and Considerations:ITA 46(1),(2),(3),(5), 237.1, 248(35), IT 332R

Gifts of Personal Property:


Taxable Portion of Capital Gains cut in half for Gifts by Taxpayers of:Publicly traded securities on Cdn and 27 foreign exchanges; mutual funds and segregated funds;Prescribed debt obligations;Does not apply to Tier Three (Venture Exchange)Can be applied after death (118.5).

More Rules and Considerations:ITA 38a, 38a.1, Reg 3200, 3201, RC 4108(E)

Does not apply to private foundations OR to capital losses!


Life Insurance, RRSP, RRIF:

More Rules and Considerations – Cont’d:118.1(5.1),(5.2),(5.3)

Now beneficiary designation qualifies as gift made by individual (deceased) – not corporate;

Transfer must occur within 36 months of death; May apply to residual values of annuity;

Can be extended with permission from Minister. Now, similar to bequests thus excellent for

endowments.


Charitable Gift Annuities

Two Kinds: self insured and re-insured; Both offer guaranteed, non-reducing payments for life or

term of years; Re-insured offer guarantee periods (other than term or

life); Can be single life or joint (spouse, sisters, brothers, etc.); All or majority of payment is tax free; Tax receipt = (amount donated – cost of annuity).


Donor, the estate, or anything that is non arms-length with the charity and its officers and like officials; then

The Great Challenge:ITA 118.1(13), 118.1(18), 118.1(6), 110.1(3), 110.1(6), 40(1.01)

Non-Qualifying Security:

Privately held security, or debt obligation;

No gift is deemed to have been made until the above conditions are cleared. Once done, tax receipt the lesser of the FMV when gifted, or when condition was cleared. Includes death of individual. Disposition still occurs regardless. Special reserve elections available.


Non-Qualifying Security – Excepted Gift:

Privately held share gifted at arms-length to a charitable organization or public foundation only.

Tax receipt issued immediately for FMV at that date.

No further requirements of charity or donor.

The Compromise:ITA 118.1(19)


Must be gifted to a designated institution; Schedule “A” or Schedule “B”; Fair Value (tax receipt) determined by

CCPERB; Cost base disposition (no capital gain); No income limit (e.g. 75%); Donation can be carried forward for up to 5

years. Excellent for getting more business

Special Gifts:Gifts of Cultural Property:

Planned Giving:Planned Giving:Examples:Examples:

Gift of Publicly Traded Securities:

Bill has $100,000 worth of IBM shares. The shares have a cost basis of $10,000.

Bill gifts the shares to ABC Charity for a $100,000 tax receipt which produces a $45,000 tax credit.

Bill has a taxable capital gain of $22,500 which attracts $9,000 in tax.

Bill’s net tax savings is $36,000 ($45,000 - $9,000).

If stock was corporately owned, a tax-free capital dividend of $67,500 could be paid out.

Purchase a new Policy with Charity as Owner:

Bob and Mary purchase a 10-pay, joint LTD policy with death benefit of $250,000. The hospital is the owner. The annual premium is $3,470.

Upon the last death, the hospital will get the $250,000.


There is no need to purchase first then assign to the charity


Assign an Existing Policy to Charity: Some time ago, Bob and Mary purchased a 10-pay,

joint LTD policy with death benefit of $250,000. The current cash value is $23,870. There are no policy loans or premiums due.

Bob became seriously ill and was cared for in the local hospital.

Once recovered, Bob and Mary decided to assign this policy to the hospital. They receive a $23,870 tax receipt today, the hospital will get $250,000 later.

Policies about to lapse may be assigned to other charities


Wealth Replacement:118.1(6), 110.1(3)

Sylvia age 73 and a non-smoker cannot use her cottage any longer.

All of her children have moved out of province and she has been assured that they do not want the family cottage.

She decides to donate the cottage to XYZ charity for a $150,000 (ACB) tax receipt.

The resulting tax saving of $67,500 was sufficient to purchase a $250,000 insurance policy with her children as equal beneficiaries.

XYZ charity sold the cottage to help fund its activities, and Sylvia left $250,000 tax-free cash to her family.

Can use securities as well!!


Wealth Replacement: mortgaged property

Sylvia age 73 and a non-smoker cannot use her cottage any longer.

$300,000 FMV, ACB = $150,000, mortgage amount = $50,000

She decides to donate the cottage to XYZ charity. In order to generate the same $67,500 to purchase the

policy, she needs a credit of $117,500.XYZ charity sold the cottage to help fund its activities, and

Sylvia left $250,000 tax-free cash to her family.


Perpetual Tax Shield:

Assume Mary owns a life only annuity that pays her $8,000 per year.

The taxable portion is $1,800 which attracts $720 in tax.

Mary’s net after-tax cash flow is $7,280 per year.

If Mary wanted to help her charity, she could direct the $1,800 to pay for a T-100 policy for $200,000 on her life. The policy is owned by the church.

Mary receives a tax receipt for every premium paid.

Her after-tax cash flow is now $6,290 (10.5% Pre-tax GIC Return)

Her net cost of the gift per year is $990.


AnnualAnnual

AnnuityAnnuity

PaymentPayment

TaxableTaxable

AmountAmount

Tax Tax DeductibleDeductible

Donation of Donation of Ins. Ins. PremiumPremium

Net Tax Net Tax Savings Savings at 46%at 46%

Net Net Spendable Spendable IncomeIncome

AfterAfter

TaxTax

YieldYield

Pre-Tax Pre-Tax Gross Gross YieldYield

$12,597$12,597 $759$759 $7,125$7,125 $2,928$2,928 $8,400$8,400 $8.4%$8.4% $15.55%$15.55%

Assumptions: Male Age 78 Non-smoker

$100,000 Invested & $100,000 Insurance

Cash Flow


Charitable Remainder Trust:

Major thrust of the government relations of the CAGP.

Second only to bequests in the USA.

Not clearly defined in the ITA of Canada.

Can work with non-capital property or where ACB is close to FMV.

Does work with real property (residual interest).

Can be used to generate income from non-income producing assets.

Used to remove assets from estate (challenge, probate)


Charitable Remainder Trust (AKA Charitable Estate Freeze):

Charities are the capital beneficiaries;

75 year old or older donors;

Can be inter vivos or testamentary;

Gift deemed to be made by individual – not trust;

Full disposition into the trust of non-real property;

Capital cannot be encroached upon;

Tax receipt = discounted value of capital that will ultimately pass to the charity;

Valuation – hence avoid complicated properties.

Capital gains are considered to be capital.



Trust needs to be properly constructed and collapsed;

Trustees appointed (can be financial advisor);

Tax returns filed;

A lot of work to go around!!



Bill age 75 places $250,000 in money market funds into a trust;

He receives all the interest income for life;

When he dies, the hospital will get the $250,000;

Bill gets a $187,000 tax receipt ($84,150 tax savings).

It may be possible to use insurance to replace the value of the assets placed into the trust!!

Client Financial Planner

Investment PlanningIs my money safe & is my return maximized for my

risk profile?

Present Situation& Objectives

Where am I now & where do I want to be?

Retirement PlanningDo I have enough money to live comfortably & protect

against inflation?

Estate PlanningHow can I best create, preserve, and transfer

wealth?

Tax PlanningHow can I best defer,

convert, or eliminate taxes?

Planning Process1. Gather Data

2. List Objectives3. Prioritize Needs

4. Review Alternatives5. Develop Plan

6. Implement Plan7. Review Progress

The Financial Planning Guide


Any Questions???

Email: [email protected]

Thank You!

Planned Gifts Website at

www.lawton.mb.ca

Planned Giving:

Documents

Transcript of Planned Giving: