What is a planned gift?
A donation resulting from financial, tax or estate planning:
- It is immediate or deferred.
- It reflects the philanthropic desires and objectives of the donor.
- It takes into consideration the various aspects of the donor’s motivation (personal, family, fiscal).
Planned giving provides concrete and lasting results. It allows charitable organizations to benefit from the long-term funding that they need in order to administer the services necessary to maintain and improve the quality of life within their respective communities. Different types of planned giving exist, each of which offer different fiscal advantages.
LEAVE A LEGACY (TM) Québec also publishes three brochures: one on planned giving, one on charitable bequests and one on gifts of life insurance. To obtain a free copy of these brochures, contact 1 888 304-8834.
Different types of donations
Planned giving is above all a gesture that comes from the heart. However, it is important to be informed about the tax regulations which 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 (notary, lawyer, financial planner, accountant) for help in choosing the type of donation that meets your needs and those of your family.
Once you secure the well-being of your family and friends, you may choose to include in your will a significant donation to one or many charitable organizations. 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 planning a gift. Providing first for the well-being of one’s family and loved ones, you can also bequeath an amount or percentage of your assets to one or more charitable organizations of your choice. There are indeed many ways to do so:
- 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 a charity as contingent beneficiary in the event of death of the primary beneficiary;
- Universal bequest (all of the assets, sometimes divided among many beneficiaries);
- Designating a charity as beneficiary of an RRSP, RRIF or life insurance policy;
- A simultaneous death clause whereby the charity 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.
Gifts of Life Insurance
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 a charitable organization and continue to pay any premiums still owing, if applicable. Note: this case constitutes a transfer and not a conversion.
- Purchasing a new policy. If you wish to make an important donation but your means are modest, you can purchase a life insurance policy and subsequently name a charitable organization 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 a charitable organization as the beneficiary of the death benefit. The organization 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. The death benefit will then support the organization you have chosen.
In many ways, using a life insurance policy makes it possible to make a major gift while protecting the inheritance of one’s heir(s).
The gift of life insurance can generate significant tax savings for the donor. In order to benefit from these savings immediately, you must designate the organization as beneficiary and owner of the policy. You will then 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 foresee that your estate will be left with a heavy fiscal burden, it may be more beneficial for you to name the organization as beneficiary of your policy, in part or in total, 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
Gifts of Listed Securities (eligible shares and other securities)
A charitable gift annuity consists of a donation of money or other assets to a charitable organization in exchange for guaranteed earnings for life or for a 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 the charitable organization.
If the annuity is insured, only the organizations recognized by the Canadian Revenue Agency (CRA) as charitable organizations are allowed to receive this type of planned gift. It is also imperative to check that the provincial laws and specific rules of the organization allow for this type of activity. 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 that you will 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
Our reference for planned gifts.
To find out more about the advantages of a planned donation, please contact:
514 725-2653, ext. 101