The Joy of Planned Giving

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For centuries, people have made efforts to help the less fortunate. The singer of U2, Bono, has been involved in many issues throughout the years and supports erasing Third World debt to wealthy countries. Michael Jordan is involved with a variety of charities including the Boys & Girls Club of America, UNCF/College Fund, Special Olympics and organizations that support children and families. Bill and Melinda Gates focus on areas dedicated to improving people’s lives by advancing health and learning efforts in the global community.

You do not have to be famous and wealthy to get involved — everyone can! For a small monthly, tax-advantaged donation of $25 to $100, you can help a child through an NGO such as World Vision. There are many such Non-Government Organizations (NGOs) that help people worldwide when and where disaster strikes.

Planned Giving

Planned giving raises funds through a program of arranging regular systematic donations to serve the interests of a registered charity that best suits the personal, financial and tax situation of an individual donor. Via planned-giving programs, registered charities seek to attract substantial gifts by presenting potential donors with information and advice. You can include the following is your planned-giving program: bequests, annuities, life insurance policies, and residual interests or charitable remainder trusts. Segregated funds work well because they can guarantee the invested capital (plus any growth) upon the death of a donor.

Charitable remainder trust.

A charitable remainder trust involves transferring property into a trust whereby the donor retains a life interest in the property but makes an irrevocable gift of the residual interest to a registered charity. A registered charity can issue an official donation receipt for the fair market value of the residual interest in the property at the time that the residual interest vests to the charity.

How to donate a life insurance policy to a charity.

When an individual absolutely assigns a life insurance policy to a registered charity and makes the charity the registered beneficiary of the policy, the charity can issue an official donation receipt for the cash surrender value of the policy at the time of donation and for the subsequent payment of premiums.

RRSP as an enduring property.

Under the Income Tax Act, a charitable donations tax credit can be claimed on a deceased individual’s return for a donation via a direct distribution of his or her proceeds to a qualified donee who is the designated beneficiary of a registered retirement savings (or income) plan (RRSP/RRIF), a registered retirement income fund (RRIF), or a life insurance policy. Under the Act, a gift received by a registered charity by way of direct designation is a gift of enduring property.

Donating a Registered Pension Plan (RPP).

An individual can designate a registered charity as their beneficiary of a registered pension plan. A charity can issue an official donation receipt for lump-sum pension benefits paid to the charity.

Note: Ask your Advisor if any legislation has changed this.

Designating your charitable contributions

A charitable contribution is a gift, and, like any gift, is an irrevocable transfer of a donor’s entire interest in the donated cash or property. Hence the donor’s entire interest in the donated property is transferred, and it is for the most part (except for “designated” uses) impossible for the donor to recover the donated property.

Undesignated contributions Most charitable contributions are undesignated, meaning that the donor does not specify how the contribution is to be spent. An example would be a church member’s weekly contributions to a church’s general fund or a contribution to the United Way or World Vision. Undesignated contributions are unconditional gifts and there is absolutely no legal obligation to return undesignated contributions to a donor under any circumstances.

Designated contributions A donor can make a “designated” contribution to a charity, where the donor designates how the contribution is to be spent. Where such contributions are held in trust for a specific purpose, and insofar as the charity honors the designation, or plans to do so in the foreseeable future, it has no legal obligation to return a donor’s designated contribution.

Where designated contributions will not be used for the specified project, and donors can be identified, they should be asked if they want their contributions returned or retained by the charity and used for some other purpose. Ideally, donors should communicate their decision in writing to avoid any misunderstandings. Charities must provide donors with this option in order to avoid violating their legal duty to use “trust funds” only for the purposes specified.

A charity should send a letter to donors who request a refund of a prior designated contribution informing them that (1) there may be tax consequences, (2) they may want to consider filing an amended tax return to remove any claimed deduction, and (3) they should discuss the options with their tax advisor. Charities should consult with an tax attorney when deciding how to dispose of designated funds if the specified purpose has been abandoned or is no longer feasible.