A Time to Give

Christmas is a time to give gifts to friends and family but it may also be a great time to give to charity. In fact, a report by Mackenzie Financial say that 90% of all charitable donations are done in the month of November and December. While there are many reasons for making charitable donations, studies have shown that the top three reasons people give to charity are beliefs in the organization, commitment to social responsibility and paying less tax. Giving to a worthwhile cause is good for the soul and it may also be financially rewarding.

Two great ideas to give to charity

1. Donate shares instead of cash. As of the 2006 budget, Canadians can donate a publicly listed stock, bond or mutual fund and pay no capital gains. Prior to May 2, 2006, the tax rate on donated securities was half the normal capital gains rate. Let’s take a look at an example of how this is beneficial.

Let’s say I have a non-RRSP mutual fund portfolio worth $10,000 and I am planning to donate $1000 to a charity of my choice. If my mutual funds have appreciated in value it is better for me to donate shares of mutual funds worth $1000 rather than donate in cash. Once I donate the shares, I can then use the $1000 cash to rebuy the mutual fund leaving me with the same amount in mutual funds as before the donation. By donating in shares instead of cash, I still get the tax receipt for the donation but I lower the amount of capital gains tax I will have to pay in the future.

2. Start an endowment fund. Setting up a private charitable foundation is something that typically only the rich can afford. Now there are charitable giving programs that allow you to start and endowment fund that gives you benefits similar to having your own private foundation but with as little as $10,000.

In Canada, there are over 150 Community foundations that provide a flexible, and easy way to set up an endowment fund. Locally, we have the Edmonton Community Foundation, which allows individuals to create a planned giving program in the foundation with their own name. This year, my wife and I plan to open an endowment fund called the ‘Yih Family Charitable Giving Fund’. The minimum amount to open an account is $10,000. Once we make the contribution to the foundation, we immediately get a tax receipt for the entire contribution. Every year, we get to donate 4.5% of the fund to a charity of choice.

Another option for endowment funds comes from Mackenzie Financial, one of Canada’s largest mutual fund companies. The minimum amount to start and endowment fund with the Mackenzie Charitable Giving Fund is $25,000 but it gives you more choice in how you want to manage the investment of the account through any of seven mutual funds. At the beginning of every year, Mackenzie lets every account know how much is available for grants (usually 3 to 5% of the fund). The grant can also go to any registered Canadian Charity. The Foundation also has the added benefit that I can choose an individual to succeed as successor. For example, I could choose to name our children to establish a multigenerational tradition of philanthropy.

I think these endowment fund programs are amazing tools to help shape and define your legacy. By setting up a charitable giving program, you can not only give back to your community through important charities but also create a lifetime of giving.

When I think of Charitable giving, I always think about the words of Sir Winston Churchill, “We make a living by what we get. We make a life by what we give.” There’s no better time to start than the present.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

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