Create a Giving Plan Before You Start Donating to Charity

Want to maximize your philanthropic gifts? You’ll need to plan ahead.

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Most Canadians donate to charity in December, giving a one-off gift to an organization that’s important to them. While that’s all well and good, for higher net-worth individuals, last-minute gifts may not be the best way to donate one’s dollars.

Just as prudent people create financial plans, they also need to develop charitable giving plans that fit their needs and giving goals.

Just like you shouldn’t invest your hard-earned money without a plan, neither should you donate without some direction. These days, philanthropically minded Canadians are creating charitable giving plans that look at everything from how much to donate to the best ways to give.

“Just as prudent people create financial plans, they also need to develop charitable giving plans that fit their needs and giving goals,” says Craig Hughes, Investors Group’s Manager of Tax and Estate Planning. “To make the best use of your donations, to preserve your legacy, and to minimize your taxes and other estate fees, a charitable giving plan is essential.”

So, what should be included in this kind of plan? We explain.

How to create a plan

Creating your own charitable giving plan is personal, says Hughes and it depends on how much money you have, how much you wish to donate and how you wish your donation to be distributed. Like a financial plan, it should be done in consultation with your financial advisor.

The first place to start is to think of causes that are most important to you. It’s often personal, says Hughes, like a hospital you had treatment at or the school you went to as child.

The next step is to choose how you want to donate. Do you want to donate to one charity over several years? Gift money to different organizations? Ask charities to apply for grants?

You’ll also need to set annual donation targets. It’s similar to setting retirement goals. If you want to donate $200,000 to a charity over the next five years, you’ll need to figure out how you’re going to do it and if it’s even possible given your own financial picture.

As well, make sure your giving plan and your estate plan are aligned so gifts can continue to be given even after you’re no longer here.

Strategies to consider

When creating a giving plan, it’s important to figure out how you’ll want to give. Here are a few donation strategies to consider.

Establish a Donor Advised Fund
Donor-advised funds (DAF) allow people to donate their money like a foundation would, but without the costs of maintaining one. A third-party, like a financial institution, oversees the investment of those funds, but you can still decide where the donations go. “You receive an immediate tax receipt for all contributions made to the fund and retain the rights to advise the DAF on how to use the fund’s income,” he says.

Donate a life insurance policy while you live
Life insurance is a good way to give a charity a lump sum donation after death. “This option ensures your charity receives the policy’s total death benefit and you enjoy certain tax credits,” says Hughes.

Donate publicly funded stocks or securities
Rather than giving cash, consider donating stock. “You pay no capital gains tax on the donated securities and receive a tax receipt for their full value,” says Hughes.

Establish a Private Foundation
For individuals who want to donate assets worth more than $1 million, a foundation can be a good way to donate and keep full control over your dollars. “If you’re making a very substantial donation, this option allows your name or your family’s name to be permanently associated with the causes you’ve chosen,” says Hughes.

Something else to consider in your charitable giving plan: your time. “Give the gift of yourself,” says Hughes. “Your charity will certainly make good use of your monetary donation, but you might also want to take an active role as a volunteer.”

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