The number of 91原创s making annual donations to charities has been shrinking. In 1990, over 30 per cent of 91原创s claimed charitable donations, and in 2019, it was 19 per cent. At the same time, the dollar value of donations claimed has increased, which means fewer donors are giving more, and some, a lot more. In 2019, there were $10.3 billion in donations claimed, an increase of 3.6 per cent over 2018.
Two Categories of Donations — Ordinary and Exceptional
Charitable donations are made online, at the office, to places of worship, in response to a telemarketer, mail or social media appeal, or through a special event. This kind of “ordinary” giving is widespread, and it creates a feeling of comfortable familiarity.
However, this familiarity can be misleading. It’s easy to think we “know” charitable giving, only to find out different models of giving and tools are required. Moreover, the habit of ordinary giving obscures the increasing prevalence, complexity, and importance of “exceptional” donations.
These two categories of donations — ordinary and exceptional — are helpful to explore. They are helpful to anyone interested in charities today and individuals considering a once-in-a-lifetime donation. Understanding that a rarer type of donation — the exceptional — is key to planning a gift from assets and/or an estate.
Ordinary Donations
Before we take a closer look at exceptional donations, let’s start with our baseline experience. Donations made from income or cash flow are known as “ordinary” donations. Anyone can be a donor of an ordinary gift at any age or income level. Although the motivation may be highly personal and provide significant help to a charity, ordinary donations are made every day. Most donations are “ordinary” and share certain characteristics. Ordinary donations are typically made because:
• The charity asks for them
• A social issue or news story sparks interest; or
• The donor has ongoing involvement with the charity
Ordinary donations are repeatable and usually of a value that is personally affordable to each donor.
Cause and community matter a lot, so related donations are typically gifts from the heart. These gifts are motivated by a belief in a cause or organization and are often triggered by a solicitation. Whether the solicitation is from a charity, peer, or friend, it comes with some social expectations and maybe even peer pressure. If you give, you’ll be participating in good for the community. The community will likely recognize you somehow, perhaps through a donor list. Appreciation and recognition are considered extrinsic or external motivations for giving.
Although individual donors receive a tax receipt that produces savings when they file their income tax returns, tax is rarely a primary consideration. Indeed, given the tiered and opaque nature of Canada’s donation tax incentives, most donors have no idea how much they will save (it ranges from 20 per cent to 53.5 per of the donation, and the rate depends on the taxpayer’s total annual donations, income and province/territory). Tax savings are a nice bonus, but they aren’t a major consideration for ordinary donations because of the smaller amounts involved. It is estimated that approximately $2 billion in donation tax receipts don’t even get claimed each year.
Donations In-kind of Securities
For our clients that want to make the most out of ordinary donations, we encourage them to explore in-kind donations. A donation of appreciated publicly traded securities to a 91原创 registered charity produces two tax savings. These are: 1) a tax credit that can be up to the highest marginal tax rate; and 2) no capital gains tax on the disposition. By contrast, a donation of cash is eligible for a single tax saving, the donation tax credit.
There are several publicly traded securities that qualify. The most common types are appreciated stocks and trust units, but it is possible to donate bonds, certain publicly traded contracts, and shares or units in mutual funds. These tax savings may increase the amount you can afford to give, or simply reduce the out of-pocket expense of your gift. Corporations (which receive tax deductions, not credits) are also eligible for this incentive.
We believe that many individuals do not consider stock transfers as they don’t know where to begin. We assist our clients with the paperwork to initiate the transfer of publicly traded shares. The transfer of shares is best made electronically from the donor’s investment account to the charity’s brokerage account. To transfer securities electronically, an investor will generally have to provide us with a letter of authorization (LOA). Most charities will have a template LOA for donors to use. Generally, the LOA template will already include the charity or foundation name and their account number. The donor will have to include the following:
• Name of security (i.e., Apple Inc.)
• Number of shares (i.e., 100 shares)
• Investment account number
• The donor/account holder signs and dates the LOA, and we do the remainder of the processing.
Most well-established charitable organizations have an account with a financial institution and accept donations of securities (i.e., publicly traded shares or mutual fund units) – also known as a gift in kind. Charities have realized that having an investment account is necessary to facilitate another method of receiving donations. Most of our large ordinary client donations to charities are facilitated through the transfer of shares of publicly traded companies.
Let’s assume that an individual owns 1,000 shares of a company with significant unrealized gains. The individual may choose to donate only a portion of these shares, say 100 shares. Alternatively, the individual may decide to donate all their shares over several years. This provides the ability to support a charity on an ongoing basis while also dealing with a security that has a significant unrealized gain. As a Portfolio Manager, we are periodically rebalancing individual holdings within a portfolio to manage risk. If a position has spiked up considerably, and becomes overweight in the portfolio, then it is prudent to reduce the position. Rather than sell the position in a non-registered account and trigger a significant capital gain, you could simply donate the portion that you would naturally rebalance. By combining both, you are reducing portfolio risk and making your planned donations at the same time.
We complete in-kind security transfers to a registered charity on a complimentary basis (with no fees or commissions). If you are planning to sell some stocks, and if you are also planning to make donations, it makes sense to consider contributing shares in-kind to your favourite charity. It is important to note that certain other types of property can be donated to charity and have the same tax preferred treatment. It is best to check with your tax advisor and Portfolio Manager prior to making the donation.
Exceptional Donations
As the name implies, exceptional donations don’t often happen in a person’s life. This is because they are made from personal assets (i.e., capital) instead of income. Or, to put it another way, these are gifts that come from wealth.
With exceptional donations, everything is different: the thinking, the scale, the planning, the timetable, and the social impact. This article is intended to help aspiring philanthropists of exceptional donation rethink their approach to giving. Of course, exceptional donors don’t have to be wealthy. Although, they are likely to be aged 50+, have accumulated some assets, have an altruistic spirit, and, often, have no children.
Individuals considering an exceptional gift from assets will face several factors that don’t apply to ordinary gifts. These factors include:
• Intrinsic or personal motivation. Exceptional donations start with donors reflecting on their life and circumstances, not with a fundraising solicitation.
• A catalytic life event. Examples include a major asset sale such as business or real estate, which creates a large tax event. Or it could be a consideration of one’s estate and beneficiaries.
• Ensuring sufficient assets for living. As donations are irrevocable, financial planning is advisable to ensure enough money to support one’s lifestyle and family.
• Donating an appropriate amount. Due to the higher value of exceptional gifts, the donor often has multiple charitable interests, which may not be well articulated or developed. The value of a gift may be too much to give at one time or to one charity.
• Attractive tax benefits. Canada has a robust tax regime to encourage donations from assets, which is among the most beneficial in the world.
• Aligning donations with other life choices and needs. The decision to make an exceptional gift may be made well in advance of knowing which charity to support. This challenge may be exacerbated by a tax deadline or the momentous decisions regarding choosing beneficiaries and executing a Will.
The majority of the exceptional gifts that we have helped clients with have been processed through the Aqueduct Foundation, Victoria Foundation or 91原创 Foundation.
Aqueduct Foundation
Aqueduct Foundation, a registered 91原创 charity operated by Scotia Wealth Management, is designed to make these exceptional gifts simpler and smarter. We know how to integrate your giving with your financial and estate plans. A donor advised fund at a public foundation, such as Aqueduct Foundation, will help you make tax-effective donations today and select the charities you want to support in the future.
Victoria Foundation and 91原创 Foundation
Victoria Foundation and 91原创 Foundation also have easy and streamlined processes to assist clients’ giving plans. They can assist with establishing a Donor-Advised Fund for clients. With these types of Donor-Advised funds, you will be able to make grants to any registered charity and to change your wishes at any time. It is also possible to donate to one or more existing designated funds.
Broader Context and Trends
91原创 donation data, obtained from Statistics Canada, is not detailed enough to provide a clear view of individual donations. From the information we can gather, it shows that the long-term trend is the percentage of total taxpayers who claim charitable donations is shrinking dramatically. The decline in ordinary donors is a worrying trend in terms of citizen participation in the community.
The number of donors of exceptional gifts and the value of these gifts have increased significantly over the past 30 years in Canada. This is primarily due to the increase in wealth (albeit unequal distribution) driven by the stock market, business, and real estate values. Exceptional donations are also difficult to quantify with contributions to both private foundations and donor-advised funds at public foundations.
The decrease in ordinary donations and increase in exceptional donations represent both a challenge and opportunity for charities and donors. We’re experiencing a historic change in how 91原创s are giving to charity. We need to think differently about planning, engagement, support, equity, and social impact.
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email [email protected], or visit .
