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Develop a strategy for charitable donations

Develop a strategy for charitable donations

Did you know that the percentage of Canadians donating to a charity has fallen over the past few decades? In a CBC article, the research said that only 23% of Canadian donated to a charity, down from 30% in the 90s. At this time of year, we get bombarded with opportunities to donate money to worthwhile causes. Many of us are inundated with pleas to help others at such a giving time of year and while our hearts may be in the right place, we also must face the realities of budgeting for giving gifts to our friends and family. I was recently told by one charity that 90% of all charitable donations are done in the month of November and December.

Why donate to charities?

As current Canadian governments continue to place a greater priority on fiscal responsibility, universities, charities, and other non-profit causes are made to suffer. Yet, our social safety net is one of the very reasons that Canada is considered one of the best places in the world to live. How do we balance social responsibility with fiscal responsibility? I emphasize that we all have responsibilities to our social well being and collective culture.

According to the Canadian Center for Philanthropy, the top motivators for giving are:

  1. They have compassion for a cause they personally believe in.
  2. They have been personally affected or know someone that has been personally affected by the cause the organization supports.
  3. They feel they owe something to the community
  4. To fulfill religious obligations or beliefs
  5. To get an income tax credit.

According to the most recent National Survey of Giving, Volunteering and Participating, 78% of Canadians make direct financial donations. The average donation is dropping and last report shows that the average donation per year is about $200 per person.

Where does the money go?

Almost half of all the donations went to religious organizations. 20% of all donations went to health organizations, 10% went to social service organizations and the rest was spread among fundraising, philanthropy and volunteerism organizations.

How can you make a difference?

There are a number of ways to give to a charity.

1. Lifetime giving

This is an area with which many people are familiar. We can make direct cash donations to charitable organizations through causes like walk-a-thons, telethons, golf tournaments, etc. Pick a few charities that are important to you and make a regular effort to support these meaningful causes. Many charities have monthly or yearly giving plans available to facilitate your schedule. Planning your donation ahead of time might prove to be more gratifying. Personally, by taking a few minutes to select the charities that are meaningful to me, this allows me to deal with the multitude of telephone solicitors by saying, “I’ve supported my charities already, thanks.”

Most contributions qualify for a tax receipt. While only 11% of Canadians give to charities to get a tax credit, it is a good idea to try to get a tax receipt for your contribution. Your first $200 of charitable donations qualify for a 15% federal tax credit. After $200, you will get a credit of 29%. Individuals are limited to claim donations of 75% of income, except in the year of death (and the preceding year) where the limit is 100% of income.

2. Giving “in-kind”

Instead of giving money to charities, you can provide donations “in-kind”. One common example of this is donating cans of food to a food bank instead of cash. On a bigger scale, some people will choose to donate cars, stocks or even property to charities as significant “in-kind” donations. Tax laws allow for reduced capital gains taxes for gifts of appreciated assets to a charity. Simply put, if you want to donate property other than cash such as capital property you may benefit donating the property in kind rather than cashing it out and donating cash. Check with an accountant about how the tax rules relate to you specifically.

3. Charitable gift annuity

One of the common tools to provide for charities is the life annuity. You can use annuities in a number of different ways to provide charitable gifts while you are living or after you pass away. The annuity can provide you with a steady stream of income while you designate part of the capital (or income), today or upon death, to the designated charity. In this case, the goal is to provide for a charity without giving up the ability to produce income. The downside is that there is the relinquishment of control over the capital; however, future income is guaranteed for life by the annuity.

4. Charitable Giving 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 an 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.

In 2007, I sold my previous business and decided to take a portion of the sale and start a charitable giving fund I call the “Yih Charitable Giving Fund” through the Edmonton Community Foundation. Every time I make a contribution to the Yih Charitable Giving Fund, I get a tax receipt for the lump sum contribution and every year the annual growth goes to a charity of our choice. The really cool thing about it is I have involved my kids as they get a chance to determine which charity gets the annual donation. I feel like this will be a legacy that will continue for many generations beyond my wife and I. It’s also a fun way to teach my kids about the importance of giving back.

5. Charitable life insurance

Let’s say your wish is to leave a legacy of $100,000 for a chosen cause foundation, or educational institution, but you don’t want to give up that kind of money now, as it will impact your standard of living or ability to produce income through retirement.

You can put a life insurance policy in place that will pay $100,000 to the chosen charity by naming it the beneficiary of the proceeds. You can then claim the annual cost of the insurance policy as a charitable donation, even though the money is only gifted upon your death.

What if your goals are the same but you don’t need charitable credits today? Rather than claim the annual premiums of the life insurance, your estate could make better use of the credits, due to a large pending tax liability (RRSP/RRIF, pending capital gains on an appreciated asset, etc.).

In this case, you might name your estate as the beneficiary on the life insurance policy (instead of the charity), and then name the charitable institution in your will as a beneficiary of your estate in the amount of $100,000.

Your estate, then, claims a total of $100,000 in charitable donations for the year of death (and can carry back any unused portion to the preceding year by having the executor re-file) and reduces any tax liability caused by your death.

6. The gift of time

While every Charity needs financial resources, it also needs manpower and time. If you are in a situation where you can not contribute financially, then get out there and volunteer your time and energy to support these worthwhile causes.

Ideas for success, wealth and happiness

Many years ago, I wrote a book sharing all of my personal inspirations and philosophies with others. What started as a legacy piece for my kids to help them be more inspired to more success, wealth and happiness became another project of giving. When my wife read the book, she suggested that not only would my kids and family learn from the teachings but anyone could learn from these great ideas. At that point, we decided it would be a great idea and strategy to raise money on an ongoing basis for our charitable giving fund.

100% of the sale of the book go to our charitable giving fund. If you would like to contribute to a great cause but also get my book with great ideas for more success, wealth and happiness, you can buy it on Amazon in paperback or kindle formats.

Comments

  1. Cat

    I agree with your idea of having a strategy. i have one as well. I wondered though – You said ” think charitable support is more meaningful with fewer relationships rather than $20 donations here and there to many different organizations.” Does that mean you never do one off donations? I like to do them when family or friends are fundraising.

    • Jim Yih

      Thanks Cat. I do them once in a while too and under the same circumstances. It’s the door to door or phone soliciting that I don’t feel inclined to support anymore. Would you be inclined to share what your charitable giving strategy is? Thanks for sharing.

      • Cat

        Hi – charitable giving “strategy” might be too strong a word to use – it certainly isn’t at the level yours is at. 🙂 Basically, I have 3 charities I support monthly, and will generally chip in for something a friend or family member is rooting for. My main issue is being asked to donate every time you go to a store or buy something – it can add up, but I always feel awkward saying no!

  2. Harold Flake

    I agree that having a charitable giving strategy is a good idea. The door visits from strangers gets to be a bother and the impulse giving of a small sum is of little significance to the charity.In 2004 I had the opportunity to do a short term mission in Bulgaria. I was hosted by a wonderful young man whose designation was “Regional Bishop” and he was overseer for 47 churches. He and his 47 pastors all need working jobs to support their families because there simply are no extra funds for the church attenders to pay their pastors. The young Bishop was given notice of being laid off for 3 months this spring. After the 3 months, he was simply given a second notice. They exist on his wife’s salary which amounts to almost $300.00CDN per month and he spends part of this on gas to go to the 47 churches to encourage the pastors.

    My wife and I decided that he needed financial support more than he needs a job becoaus he already does more than full time work and he is making a difference in the lives of hundreds.

    We are researching possibilities for Canadian Tax Receipts for mission work through him but in the meantime, we have been impressed to help as we can by sending gift funds through PayPal, and not be concerned about the tax receipts.

    The personal emotional reward of being a part of something beyond our own capability and seeing results is far more gratifying than a tax deduction. The insignifican amounts given randomly, when combined and focussed, make a wonderful impact.

    All of our married life, we have sponsored a child in a third world country through a recognized charitable agency. We never knew with certainty that our $ weren’t spent on administrative costs. Now we sponsor an adult who impacts entire communities and we receive direct communication.

    This is a dangerous strategy because one becomes very personally involved and we find that our givings continue to increase because we are supporting something that we have a personal interest in. The latest increase is a $20.00/week investmment for a 4 month trial. This is providing rental of a building for a growing church in a Roma gypsy community. With present day markets as they are, I can’t think of a better place to invest to receive such a high rate of “interest”.

    • Gary Beuker

      Hello Harold,

      I just had to comment on your post. Sounds like we are very much on the same page.

      I found myself smiling when I read your words, “This is a dangerous strategy…”. Yes it is. Because you are getting attached to their cause. Becoming partners with them in what they do. We support a number of organizations, and a number of individuals. I found I prefer supporting people I know over organizations. I know—or at least I think I know—their hearts. And although I may not be as passionate as they are about their cause (well of course I’m not—otherwise I would be the one out there on the front lines), I trust them. We have to do that.

      I sometimes question the motives behind people, especially the ones I don’t know, realizing there is always room for ulterior motives. But if you pick people you know, or as you get to know the ones you have picked, those risks go down. And you find yourself happy to come alongside them.

      The other thing that comes to mind, as you have alluded to, is that money goes so much further in many other countries. This bishop you support ekes out a living on $300/month. An extra $20/week makes a big difference to him and his family. And ministry.

      One of my personal favourite charities is Watoto. They began by establishing homes for orphaned kids in Uganda. It thrills me to know that $20,000 builds a house to provide a home for six kids and a house mom. Where in Canada can you find that kind of value?? $40/month gives them good health care and education, and nicer teeth than my own kids have! I can do that!

      I commend you on your giving heart.

      Gary Beuker, Edmonton.

  3. Harold Flake

    Just reviewed my note and don’t know how I managed to get 2004 for my trip. It was 2008. I have returned twice since, so blessed by these amazing, hard working people.

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