Charitable giving is often driven by personal and family values: supporting a meaningful cause, giving back to the community or leaving a positive legacy. However, the way a gift is structured can significantly influence both its impact and its cost to the donor.
Strategic charitable giving integrates philanthropic goals into a broader financial, tax and estate plan. With proper planning, donors may be able to give more without increasing their overall cost—or achieve the same charitable objective while preserving more of their wealth.
Who can benefit?
Strategic giving is not limited to individuals with substantial wealth or those planning very large donations. It may be relevant whenever someone wishes to:
- Support a specific charity or cause;
- Include charitable giving in their estate plan;
- Donate part of a projected estate surplus;
- Make gifts during their lifetime and see their impact firsthand; or
- Explore a more tax-efficient way to give.
The complexity of the strategy should simply reflect the donor’s objectives, financial situation and intended gift.
Five key planning questions
A well-structured charitable giving strategy considers five essential questions:
- How much can—and does—the donor wish to give?
Financial projections help confirm that retirement needs, personal goals, contingencies and intended inheritances remain adequately funded. - Who will receive the gift?
To qualify for charitable tax benefits, the recipient generally needs to be a registered charity or other qualified donee. For a significant gift, discussing the plan with the organization in advance can also help confirm that it can accept the proposed asset and prepare for the gift. - What should be donated?
Cash is straightforward, but other assets may be more tax-efficient. Gifts can include publicly traded securities, bonds, mutual fund units, real estate, artwork and other property. - Who should make the gift?
For business owners, it may be possible to donate personally or through a corporation. The preferred approach depends on the donor’s circumstances and should be assessed carefully. - When should the gift be made?
A gift may be made during the donor’s lifetime, gradually over several years or through the estate. Timing can affect the use of available tax benefits and the overall financial outcome.
Potential tax benefits
Individuals may receive federal and provincial charitable donation tax credits, while corporations generally claim a tax deduction. Additional planning opportunities may arise depending on the asset being donated.
For example, donating qualifying publicly traded securities directly to a registered charity can be more advantageous than selling the securities and donating the cash. The donor may receive a charitable receipt based on the fair market value of the securities, while the capital gain may not be taxable under current rules.
Important considerations
Before proceeding, donors should:
- Confirm that the organization is a registered charity or qualified donee;
- Verify that it can accept the proposed type of property;
- Assess the potential impact of the alternative minimum tax rules for significant gifts;
- Review their estate plan and will if a lifetime gift changes their intended legacy; and
- Consider the interaction between their philanthropic, financial and tax objectives
Where to begin
A financial planner can help clarify philanthropic objectives, assess how much may be given without compromising other priorities and prepare financial projections. Depending on the strategy, the planner may also coordinate with accountants, tax specialists, legal professionals and the charitable organization.
Effective charitable giving is not only about how much you give. It is about choosing the right recipient, asset, donor and timing to create the greatest possible impact—for the donor, the charity and the community.
