Guide wealthy clients’ donations

By Jessica Bruno | June 13, 2014 | Last updated on September 15, 2023
3 min read

Your wealthy clients want to give to charity, but chances are they don’t know how to make efficient donations, says CIBC tax and estate planner Jamie Golombek.

Anecdotal evidence suggests as much as two-thirds of the value of donation tax credits in Canada go unused, said Golombek at a Million Dollar Round Table conference in Toronto June 11.

He says in many cases it’s because rich donors are waiting to donate at their deaths, limiting the tax benefit of gifts. Until the 2014 federal budget, tax credits from donations made in a will could be used in the year of the donor’s death, or a year prior.

But next tax season, executors will be able to choose when to claim donation tax credits. Under the old system, CRA deemed donations contained in wills as made before death. Now, the donation is made whenever the charity receives it, as long as it happens within 36 months of death. So the executor can use it on the estate’s returns, the terminal return or the year before death.

Read: Budget gives executors wiggle room

Golombek tells clients to donate during their lifetimes. Some clients aren’t sure where to donate, so Golombek suggests establishing a foundation or a donor-advised trust.

Donor-advised trusts have many of the benefits of private foundations, but they’re managed by banks and fund companies. Some require as little as $25,000, he says.

With a donor-advised trust, clients can put off deciding who to donating to, explains Golombek, while getting an immediate donation credit.

Read: 5 reasons to use a private foundation

A client can use the credit to offset her income for the current year and the next five years. In the mean time, the fund gives the money to charity.

“Every year there’s a required distribution from your donor-advised fund. Right now the distribution is 3.5%,” says Golombek, who adds that wealthy clients are constantly being solicited by charities and the funds have the added convenience of handling requests for the donor.

Read: Protect philanthropic clients

Making charitable decisions now also kick-starts the discussion for wealthy families about how money will be transferred between generations. Children can sit on the boards of private foundations, and they can be involved in discussions about what causes it should support.

That was the case for one of Golombek’s Ottawa clients, a family man in his mid-forties who sold his defence contracting firm to the government for $40 million.

At the time, the client had two teenage children who were supported environmental and human rights causes. The client set up a foundation and allocated a portion of its annual donations to the children’s causes.

“The kids would have to present their case in a family meeting twice a year as to which charities they thought were deserving,” Golombek says.

Read: Raising financially fit kids

Clients don’t just need help deciding how and when to donate, but they also need guidance on what to donate.

A senior executive at a successful company gave $100,000 to the United Way. He used his credit card to make the donation, and spent the card’s reward points on family airfare to Florida.

In a meeting with the executive, Golombek told him that had he donated some of his company stock instead, he would have saved up to $23,000 in tax.

Donations of appreciated securities are tax-free, Golombek told him. The executive hadn’t heard of such a strategy. He called the United Way back, asked to reverse the charge to his credit card, and donated stock worth 10% more instead.

“He was able, now, to save an enormous amount of tax,” says Golombek. “That’s what he’s done every year since then.”

Read: Help clients avoid gift-giving mistakes

Jessica Bruno