Tag: Dual MF + LI

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.

How can I minimize the tax paid in my estate?

The need for estate planning is especially evident for those accumulating significant retirement wealth, either in the form of business ownership, real property or investment assets. Though it is true that “You can’t take it with you”; it is possible to reduce your estate taxes enabling you to transfer more money to your heirs. The estate tax is payable on income accrued to the date of death including salary, investment income or dividends.

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The Income Tax Act deems that you dispose of all your capital assets, including stocks, bonds and mutual funds, at their fair market value just prior to your death. In the year of your death, gains that have accrued on your investments and other capital property will become taxable, reduced by accrued losses on investments and other capital properties. You will need professional tax advice when developing your estate plan.

Leaving Non-Registered Assets to Your Spouse

A surviving spouse can continue to benefit from your assets. You can defer tax payable on your accrued gains at death if you leave your assets to your surviving spouse or to a spousal trust established for the sole benefit of your spouse during his or her lifetime. The taxes are deferred until the death of your spouse or until he or she sells the assets. The deferral allows your spouse to utilize your investment assets in a tax-efficient manner and to dispose of assets in a way to minimize the taxation.

Leaving RRSPs and RRIFs to Your Spouse

Did you realize that your RRSPs and RRIFs would be subject to immediate tax upon your death unless you have established your spouse or a financially dependent child as your beneficiary, and certain other conditions are met? Tax will be payable when monies are withdrawn as income by your spouse or as annuity payments to financially dependent children. Even if you have not established your spouse as your beneficiary, he or she may be able to legally request a transfer of your RRSP/RRIF funds to his or her RRSP/RRIF and defer the tax that would otherwise be payable upon your death. Further, upon your spouse’s death, any remaining RRSP/RRIF money will be taxed (assuming there are no financially dependent children). Any RRSP/RRIF tax liability could optionally be paid using a special pre-designed life insurance strategy to help maintain your asset base and is transferable to heirs surviving your spouse.