Who Will Benefit Most from Your Will: The CRA or Charity?

Senior couple using laptop with their financial advisor during a meeting int he office. Focus is on senior man.

Canadians are one of the most generous people in the world. Donating our time and money to help others is part of who we are as a society. Compared to the regular donations you make throughout your lifetime, the decision to give a one-time gift to charity in your will can sometimes be fraught with questions and concerns such as, “How much should I give?” and “Will a charitable donation reduce the inheritance to my loved ones?”

A well thought out estate plan that includes a charitable gift in your will could reduce taxes owing, and in some cases, eliminate them completely. Click To Tweet

These are common concerns, but the reality that is often overlooked is that when you die, your estate is likely to have significant taxable income. A well thought out estate plan that includes a charitable gift in your will could reduce taxes owing, and in some cases, eliminate them completely. In making charity a beneficiary, you reduce how much CRA receives from your estate.

To encourage charitable giving, Canada has some of the best tax incentives in the world, especially when giving from your estate. Yet many people are unaware these incentives even exist.

Take for example my clients Robert and Joan* who are both in their late sixties. They have been married for more than 40 years. Now retired, they live a comfortable and active life. Various hobbies keep them busy, and they enjoy volunteer work with a couple of local charities. They are extremely generous and donate regularly to numerous causes. They are also meticulous about their financial, estate, and tax planning. 

Robert and Joan recently decided to update their wills. After assessing the value of their estate with their accountant, they were surprised to discover the value was much higher than they anticipated. They both have life insurance policies that were taken out when they had young children. Both sons are now adults, have well established careers, and are financially secure. Robert and Joan also have a non-registered investment portfolio of appreciated stocks, bonds, and mutual funds as well as two investment properties. Robert and Joan were shocked by the potential tax on their estate if they both happened to die today. Their accountant advised them to contact Abundance Canada to explore options for reducing the tax burden on their estate by incorporating charitable giving into their respective wills.

When I met with Robert and Joan, we discussed their philanthropic goals and what options Abundance Canada could provide to help achieve them. They decided to create a Generosity Plan™ that accommodated lifetime giving and a charitable gift in their wills. 

Lifetime Giving

Instead of selling the securities and then donating the cash to charity, it was more tax efficient for Robert and Joan to donate stocks, bonds, and mutual funds in-kind to Abundance Canada. This would eliminate the capital gains tax on the donated securities. They could then distribute the cash proceeds to charity over time. This strategy helped them reduce the taxable value of their estate using lifetime donations.

Gift in Their Wills

Robert and Joan decided to make Abundance Canada the beneficiary of their life insurance policies. They would continue to own the policies, and when they died the life insurance would be paid directly to Abundance Canada. Their estate would receive a donation receipt for the value of the life insurance payment, which would generate a tax credit to help offset other tax owing by the estate.

Robert and Joan provided Abundance Canada with recommendations on how the proceeds from the life insurance policy should be distributed including which charities should benefit, how much support each should receive, and over what time period.

Robert and Joan’s estate planning goal was to support their family and charity in the most tax efficient way possible. Using an Abundance Canada Generosity Plan they were able to achieve these goals plus add tax efficiency to their lifetime giving.

So, how much will CRA benefit from your estate?

Speak with an Abundance Canada gift planning consultant to discuss a charitable gift in your will.

Contributed by Brad Friesen
Gift Planning Consultant

(*) Names changed to protect the privacy of individuals

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