Had Net Fixed Assets Of Last Year-End And This Year-End Giving Money to Charity at or Near Death

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Giving Money to Charity at or Near Death

If you want to give money to charity and are planning your estate, what’s the best way to do it? There is an option to give to charity each year or as a lump sum on death. At the time of death, there are options to give to charity as part of your will, through life insurance or through the gift of assets. There are considerations to keep in mind when making these choices:

What is my income level and what do I need for my lifestyle now and on the day I die?

If you have a high annual income (high would mean you pay the highest tax rates) and don’t need that money for everyday expenses, then giving to charity while you’re alive might be a good idea. You can make this decision every year if your income fluctuates or if you have a year where your income increases, such as a year when you sell a property or accumulate capital gains from investments. There will be a trade-off between reducing tax rates now and reducing them for properties. You may also want to consider how quickly you want to give to charity and whether you want to see how your money is being used.

There are a lot of personal opinions that come out about charities and how they should be done, so it takes some introspection to ask yourself what your preferred method of giving would be. It’s a good idea to ask your favorite charities how they would like their donations – a lump sum or often assets versus cash. Some charities find it difficult to deal with large sums of money because they may not have the facilities to distribute it where they need it. Other charities may have unpredictable funding from other sources if large amounts are donated, which would disrupt their cash flows. Depending on the type of donation, the charity can earmark it for different purposes and this would facilitate how the donations are used.

If I make donations at the time of my death, how should I do it?

Donating to your RRSP

What about donating RRSP, RRIF or LIRA accounts to charity? Why am I doing this? These accounts may be highly taxed depending on your income on the day of death and the remaining balance on the day of death. This strategy is similar to donating shares that have large unrealized capital gains at death that can be reversed if the shares were donated to charity before the sale.

Giving according to your will

The disadvantages are that a will can be contested or changed, which can affect the intended outcome of the charitable giving. There are also probate fees that apply to anything that goes through probate.

Donation of Life Insurance by Will

This donation is made upon death. Note that the donation is made from the estate and at the time of death. Note that “cultural gifts” and “environmental gifts” are taxed differently. Donations can be claimed: in the estate tax year in which the donation is made, an earlier estate tax year, or one of the individual’s last two tax years up to 100% of net income. The property can also carry forward donation credits up to 5 years into the future if it is a Graded Rate Estate (GRE) or 10 years for environmentally sensitive land. Note that a gift given by will or by inheritance is treated in the same way. The donation consists of a lump sum and the tax bill is made to the property, not the individual. There are probate fees, public disclosure and the ability to contest estates.

Donations of life insurance by naming a charity as the beneficiary of the insurance policy

The individual in this case will not be eligible for a charitable donation tax credit for the premiums paid. This will be done when the insurance policy is close to renewal or expiring. If you let the policy expire without paying premiums, you may not get any value for it or you may get a cash value on surrender that may be less than its fair market value. Life insurance policies can be donated by 1) changing the designation of the charity as beneficiary and upon death. The estate will receive a tax credit based on the amount of the gift. Another way is to 2) change the ownership of the policy and the beneficiary of the charity. The charity should be consulted as to whether they would accept this type of gift. This method is useful for direct donations as opposed to using third parties. Can the donation credit be used? It is worth a maximum of 75% of net income with a carryover of 5 years.

Donations of life insurance policies directly to a charity

In case 2) the fair market value is used, which is usually higher than the cash purchase value. Who will pay the premiums after the insurance policy is donated? The insured may continue to pay premiums and receive additional tax credits for payments if they occur after the insurance policy is transferred to the charity, or the premiums may be deducted from the cash value of the policy. Other donors to the charity itself may also pay the premiums. The charity may prefer to pay the premiums because if the donor agrees to pay the premiums and does not, the insurance policy will lapse. Note that the features of a life insurance policy should be carefully reviewed to ensure that you receive the correct fair market value. In the second case, there are no probate fees, no contestability of the inheritance, and no problems with creditors and the inheritance. This case can apply to a new or existing life insurance policy for your entire life. The rest of the estate can be kept intact for the other beneficiaries. Donating a life insurance policy can be less expensive than giving a cash donation because the investment income is generated inside the life insurance policy. Note that if there is a split insurance policy between a donor and a charity, the CRA does not claim priority in favor of the donor. The benefits to the charity and the donor must be clearly separated, otherwise the charitable tax deduction will not be allowed. The person making the donation must calculate the value of the split – which is likely done with the help of an insurance underwriter or actuary.

Donation of assets

This method is a donation of assets in kind when there is an unrealized capital gain or loss in the transaction. This is called donating capital property and the total donation limit is increased by 25% of the taxable capital gain. The donor can specify a value between the ACB (adjusted cost basis) and FMV (fair market value) of the donated property to calculate the capital gains and tax credit. If an insurance policy is purchased to replace the value of the donated assets (and offset the tax consequences of the capital gain), the gift tax savings can be applied to the purchase of the insurance policy.

Donor Advised Funds and Foundations

The donor fund is a donor fund. The money is put into the fund and the fixed payout is made to registered charities. There is flexibility in when donations are made and to whom they are made. This can be used as a legacy of charitable giving, as donations can continue after death and be your heirs. The money is donated to an organization that invests the initial donation, administers where the proceeds are donated, invests the money directed by you, and issues the tax returns.

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