Donations also need planning

Bob Goldberger, Special to the Financial Post

Canadians are faced with almost constant appeals for support from worthy charities, and many give generously when asked. However, financial experts suggest that people should approach charitable giving with the same discipline and planning that they apply to the rest of their financial affairs.

“In the past, people have typically given to charities on an ad hoc basis,” says Bob Goldberger, an investment advisor and vice-president with Macquarie Private Wealth Inc. “Today, people need to adopt a more strategic approach, where they know specifically which causes they want to support and get involved with both their time and their money.”

Incorporating your charitable giving into your financial planning process will maximize the amount you can ultimately devote to charitable causes and ensure that you are deriving the full tax relief from your giving.

The Toronto-based investment advisor advises clients to start by identifying one or two of their favourite charitable causes or organizations and, following that, to sit down with an advisor–or the charity they are interested in — to decide upon the level of financial support they are willing to give.

While it is possible for people to create their own charitable giving plan and fit it into their overall investment and retirement plan, a financial advisor can ensure that clients can do so without jeopardizing their financial futures.

“As a certified financial planner with a background in accounting, I try to focus my clients on cost-effective strategies,” Mr. Goldberger says. “They are simple, they have been around for years and they work.”

“There are a lot of creative, legitimate ways to make significant donations by using a relatively small amount of your capital,” he adds.

“Too often, people think you need to be rich and write a big cheque in order to have impact. Your investment advisor should be able to show how you can provide a significant donation without depleting personal resources you might need or want down the road.”

The Macquarie Private Wealth vice-president identified three tax-efficient but often overlooked strategies whereby people can donate far more than they ever thought possible.

The first is the growing trend of donating equities, free of tax, as a result of recent changes to federal tax policy. In many cases, people have owned stocks for years and would face a large tax bill if they were to sell them.

Another strategy is to use flow-through limited partnerships and when the partnership dissolves, donate that terminal value to charity.

“In many cases they will put up 10¢ on the dollar to what the charity receives.”

Finally, people may consider buying a life insurance policy and making a charity the beneficiary.

“It is not as interesting perhaps as donating when you are alive, but you get tremendous leverage by using insurance and can make a significant donation for not a lot of money,” Mr. Goldberger says.