Planting today the harvest of tomorrow
Planning a gift with CECI
Planned giving is increasingly popular in Canada as a means of supporting a cherished charity while providing you with tax and financial benefits, and the comfort of knowing that your gift is making a difference.
Planned gifts include the donation of life insurance, charitable annuity, charitable trust and the gifting of securities or property. While helping to support the work CECI does, planned gifts provide donors with excellent benefits, which may include lifelong income, continued use of a property gift in the future, an avoidance of capital gains tax or an immediate income tax deduction. Some planned gifts, such as bequests, provide primarily gift and estate tax savings.
Different types of planned gifts
Above all, planned giving is a gesture that comes from the heart, but it is important to be informed about the tax regulations that will be applied. The more structured your planned gift is, the greater its impact.
Below, you will find succinct definitions of each of the main types of planned donations. We recommend that you contact a legal or financial advisor for more information.
Once you secure the well-being of your family and friends, you may choose to include a significant donation to CECI in your Will. If important changes occur in your life, you can always modify your Will according to your situation.
A charitable bequest continues to be one of the simplest and most accessible means of planned gifting. Providing first for the well-being of your family and loved ones, you can also bequeath an amount or percentage of your assets to CECI. There are many ways to accomplish this:
- Specific bequest (a fixed amount or identifiable asset);
- Residual bequest (all or a percentage of the remainder of the estate after the payment of debts and specific bequests);
- Designating CECI as contingent beneficiary in the event of death of the primary beneficiary;
- Universal bequest (all of the assets, sometimes divided among many beneficiaries);
- Designating CECI as beneficiary of an RRSP, RRIF or life insurance policy;
- A simultaneous death clause whereby CECI inherits, should all the beneficiaries die at the same time.
In each case, a tax receipt will be issued for use in the final tax return. The fiscal advantages that follow from charitable bequests can dramatically reduce the taxes to be paid out by the estate.
Life Insurance Gifts
There are various ways of making a gift of life insurance. The type of gift will depend on your client’s objectives, age and family situation.
- Surrendering an existing policy. If you no longer need the protection of your life insurance policy, you may surrender it to CECI and continue to pay any premiums still owing, if applicable. Note: this case represents a transfer and not a conversion.
- Purchasing a new policy. If you wish to make a major donation but your means are modest, you can purchase a life insurance policy and subsequently name CECI as beneficiary. In this case, it is always preferable to spread out the payment of the premiums over a limited period of time, for example three, five, seven or ten years. For each premium paid, you will receive a donation receipt for the amount of that particular premium.
- Designating CECI as the beneficiary of the death benefit. CECI may be named the beneficiary of the death benefit, in whole or in part, of a life insurance policy. It can also be a second or third beneficiary. This ensures protection of the death benefit, in the case where the first beneficiary of the policy passes away before the owner of the policy.
In many ways, using a life insurance policy makes it possible to make a major gift while protecting the inheritance of your heir(s).
The gift of life insurance can generate significant tax savings for the donor. To immediately benefit from these savings, you must designate CECI as beneficiary and owner of the policy. You will be issued a tax receipt for the fair market value of the policy, if applicable, and a receipt for each premium payment.
As your donation is made while you are living, there are no fiscal advantages for the estate. However, if you anticipate that your estate will be left with a heavy fiscal burden, it may be better for you to name the organization as beneficiary of your policy, in part or in whole, but remain its owner. This way, the donation is finalized at the death of the donor and the fiscal savings are awarded when settling the estate. In this case, you do not receive tax receipts for the premiums paid while living.
Gifts of Real Estate
You can donate a family residence to CECI while continuing to use it until the end of your life. You will receive an income tax receipt of the asset’s commuted value at the time of the donation. At the time of death, the CECI will obtain the use of this residence. If real estate assets other than the primary residence are donated, 50% of the capital gain is taxable.
Gifts of Listed Securities (eligible shares and other securities)
The gift of publicly listed securities, bonds, mutual fund units or similar securities is one of the most fiscally advantageous ways to make a substantial donation to a charitable organization because the donor will avoid paying taxes on the capital gain. The gift of shares or other securities will get a tax credit. It is better to directly transfer the securities rather than donate the proceeds collected from selling them. This type of donation is best for those who wish to make a substantial donation without affecting their liquid assets, or those who own shares or other securities that have significantly increased in value since their acquisition.
A charitable gift annuity consists of a monetary donation or other assets to a charitable organization in exchange for guaranteed earnings for life or for a pre-determined period of time.
The organization can issue the annuity itself and assume the risk associated with it. In order to avoid assuming the risk, it can also buy this annuity from a life insurance company and name the donor as the primary beneficiary of the annuity. The residual amount is paid to the organization, as a secondary beneficiary, when the grantee of the annuity passes away.
In both cases, the annuitant will obtain regular payments in compensation for the capital transferred to CECI.
The surplus of the annual annuity on the cost of the annuity divided by the life expectancy is equal to the taxable portion. The receipt you receive equals the difference between the capital paid and the market value of the annuity. Often, tax credits will cancel the taxes to be paid.
Charitable Remainder Trusts
Creating a charitable remainder trust allows you to make a substantial donation, while still receiving the income generated from the asset you are transferring. The trust manages the allocated capital until the time of death; at that time the capital will be transferred to the charitable organization chosen. Setting up such a trust entitles you to a donation receipt of the transferred assets commuted value.
Endowment funds, when used as a type of planned gift, consist of transferring a large sum to CECI and designating the particular cause that will benefit from the income generated by the capital transferred as a donation. The terms and conditions pertaining to such a fund are documented in a contract between the organization and the donor. To comply with the standards of the Canadian Revenue Agency, the capital will remain intact for life or for a minimum of ten years; CECI is subject to disbursement quotas, which are 3.5%. The charitable organization that you will have selected will manage the capital and will present you with an annual report, providing all relevant financial information. You can choose the name of the fund to perpetuate the memory of a loved one.
Please contact Sandrine Guillot, Development Officer – Major gifts and planned giving.
514-875-9911 ext 327
The CECI is a member of Leave a Legacy Quebec (http://en.unheritage.org/) and was inspired by them to create this text.