Leave a Legacy Newfoundland and Labrador

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Brook Kelley
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1 Leave a Legacy Newfoundland and Labrador Charitable Bequests Tips & Considerations Presented by Catherine Barrett, Memorial University of Newfoundland November 3, 2016

What is Planned Giving Also known as Legacy Giving or Gift Planning A planned gift is a philanthropic gift and legacy that is funded either during the donor s lifetime or after the donor s death

2 What is Planned Giving Also known as Legacy Giving or Gift Planning A planned gift is a philanthropic gift and legacy that is funded either during the donor s lifetime or after the donor s death Planned gifts are referred to as such because they require more planning, negotiation and counsel than many other gifts and the gift is usually part of a larger estate-planning process in which the donor decides how certain assets are distributed Planned gifts often enable donors to give a greater gift than they could give during their lifetime Planned gifts benefit society and the donor

3 Types of Planned Gifts Bequests Gifts of Life Insurance RRSP or RRIFs / TFSAs Gifts of Securities Charitable Remainder Trusts/Gifts of Future Interest Donor Advised Funds

4 Tax Considerations Life insurance: Tax treatment depends on who owns the policy. If the donor assigns beneficiary status and ownership of the policy to the charity they are eligible for a charitable tax credit in the amount of premiums paid. However, if they keep ownership the charitable tax receipt will be issued to the estate for the full amount of the proceeds. RRSPs: At death, the total value in a registered retirement account must be reported as income and is fully taxable to the estate unless funds can be rolled over to a surviving spouse or dependent child/grandchild. However, by naming a charity as beneficiary the estate will receipt a tax receipt for the value of the funds donated. The resulting tax credit will help to offset tax owing on the funds by the estate. Probate fees are avoided on assets in both cases

5 Tax Considerations Gifts of Securities: When publicly listed securities are donated in-kind to a registered charity, the tax on the capital gain is eliminated. Any publicly listed securities, including shares, bonds, warrants, stocks, mutual funds and segregated fund units qualify. The charitable tax receipt is issued for the value on the day they are received by the charity s account. This can be done during a client s lifetime as well as through the estate. Gifts of Future Interests: Donors can receive an immediate tax receipt for personal property such as real estate and continue to use the property while knowing their gift will benefit a charity on their passing. US Assets: Canada and the US treaty convention for gifts to Canadian or US universities. Gifts through US retirement plans or charitable remainder trusts can be given through Friends of university foundations.

Advantages of Bequests The most popular form of planned giving as bequests are easily understood by most people Easy to establish through a will or a codicil

6 Advantages of Bequests The most popular form of planned giving as bequests are easily understood by most people Easy to establish through a will or a codicil to an existing will Assets remain under the control of the donor during their lifetime A person can change their will, and the bequest, if circumstances change

7 Disadvantages of Bequests The donor does not get the satisfaction of seeing their gift make a difference The donor does not get the immediate tax benefit In some cases when a large part of an estate is provided to charity through a bequest the donation receipt may not be fully utilized

8 Types of Charitable Bequests Specific bequest either a specific dollar amount or property such as real estate, securities or artwork Residual a share or percentage of the estate donated after all debts, taxes, expense and other bequests have been paid Contingent a bequest contingent on an event taking place, such as the death of a spouse Bequests can be restricted to a specific purpose, i.e. scholarships, or unrestricted to an area of greatest need

9 Bequest Considerations Know Your Client Know your client s assets. Give consideration to life insurance and RRSP beneficiaries, summer homes, assets in other jurisdictions, etc. Marital status and familial obligations Testamentary capacity Wishes with respect to stewardship and recognition

10 Bequest Considerations Due Diligence CRA standing check the name and status of the charity by doing a search in the CRA Charities Directorate database to ensure the charity is registered under the Income Tax Act (Canada) Endowment & naming policies if a long-term endowment is proposed check with the charity to ensure what controls it has in place, their experience with endowments, and any gift thresholds required to establish an endowment Mission and scope of charity ensure charity s mission and operations are consistent with the donor s intended purpose, and in cases of large gifts will the charity have the capacity to use the funds prudently

11 Bequest Considerations Clarity in Will Correct name of charity Use the charitable registration number and correct legal name to avoid error (i.e. the Newfoundland Cancer Society Foundation - whose gift is it?) Check if charity has NL chapters, divisions, etc. Also, what happens if charity merges or ceases to exist? Quantum of gift CRA generally requires that a will set out the specific amount or a percentage of the residue of the estate for charitable bequests Provide for residue of the estate Careful and clear wording check for spelling mistakes, errors in amount (make sure percentages add up), clarity and purpose of language

12 Bequest Considerations Acceptability of Bequest Property If gift is non-cash property such as real estate, personal property, private company shares it is important to discuss the proposed gift with the charity. Property deemed to have certified cultural or ecological significance is eligible for special tax treatment to an eligible charity. Planning in conjunction with the recipient charity is important. Ownership of property joint ownership of property may result in the estate not having enough funds for the payment of a specific bequest or not owning the property that is the subject of the bequest

13 Bequest Considerations Beneficiary designations In many cases it is best to indicate beneficiary designations of RRSPs, TFSAs and life insurance on the applicable forms and not include as part of the estate. If included in the estate ensure beneficiary designations are not in conflict. Bequest restrictions check with the charity if restricting the purpose of the bequest to ensure the conditions can be met Multiple Wills some donors have multiple wills to cover ownership of company shares, property in different jurisdictions, etc. Coordinate between wills and also note that only one estate can now be a GRE.

14 Bequest Considerations - GREs Graduated Rate Estates - new tax rules effective January 2016 For deaths after 2015 A GRE is an estate that arises on and as a consequence of the death of an individual Only eligible for graduated tax rates for 36 months The deceased can only have 1 GRE Provide the SIN of the deceased on the estate s tax return Designate the estate/trust as a GRE on its first estate tax return

15 Bequest Considerations - GREs Advantages Gives an estate trustee more flexibility for the use of donation tax credits over multiple years and by two different taxpayers (testator, estate) but the estate must maintain its GRE status More certainty around tax receipt valuation as the value of charitable gifts is at the time of the donation Things to consider Only a GRE will be able to report a nil capital gain of the gift of shares on death Complex estates or litigation may affect timelines

16 Bequest Considerations - GREs If an estate is simple the will is likely to settle within 36 months If an estate is complex: Consider selecting a professional co-executor Instruct executor to declare GRE Instruct executor to make charitable gifts as quickly as possible

17 Tips Disappearing Wills It is important that your client s will is kept in a safe place. Wills have been known to be lost, or in some cases, destroyed by beneficiaries who were not pleased with the terms of the will. If you have a client with a charitable bequest ask if they would be willing to provide the charity with a copy of the will or an excerpt dealing specifically with the bequest.

Tips Gifts of Securities Consider wording in the will to enable and encourage the executor to consider charitable gifts through in-kind gifts

18 Tips Gifts of Securities Consider wording in the will to enable and encourage the executor to consider charitable gifts through in-kind gifts of appreciated securities, if applicable and beneficial Ensure the estate is designated as a Graduated Rate Estate to avail of the tax benefits

19 Tips Power to Vary Provision If the charitable bequest has restrictive clauses and/or is endowed it is highly advisable to include provision for the gift to be adapted if circumstances change. Example from Memorial University: If in the opinion of the Board of Regents of Memorial University of Newfoundland, it should become impossible, inadvisable or impractical to use this gift for the specified purpose(s), then the Board may in their discretion use the gift to the best advantage of the University, keeping in mind the original wishes of the donor. In any such alternative application, the support provided by this bequest shall be clearly identified with the name of the donor(s).

20 Resources Society of Trust and Estate Planners (STEP) Canadian Association of Gift Planners(CAGP) conferences and Gift Planning Courses, free download of Gift Planning in Canada Leave a Legacy professional development, networking, promotion of best practices, Blogs, websites Newfoundland Public Legal Information (PLIAN) All About Estates Estate Law Canada Carters Fasken Martineau

21 Thank You Your work with generous donors will positively impact on our community! Disclaimer: This PowerPoint presentation is intended for general information purposes only.

Reference Guide CHARITABLE GIVING

Reference Guide CHARITABLE GIVING In order to promote and encourage charitable giving, the Income Tax Act of Canada (the Act ) allows a tax credit to be claimed for eligible charitable gifts made by an