This is the second article in a two-part series on charitable giving. Read Part I here.
For high-net-worth and ultra-high-net-worth families, leaving a lasting legacy through philanthropy is very often a central priority that spans multiple generations.
Many of my own clients – and their millennial children – exhibit a very strong desire to use their wealth to support a wide range of worthy causes, from racial justice to anti-poverty to environmental sustainability.
They are often surprised to learn, however, that setting up a foundation and making cash donations is typically not the best approach to supporting their cherished causes. For most wealthy individuals and families, making in-kind donations of shares via a donor-advised fund is the most attractive option for philanthropic giving.
Why not a foundation?
Setting up and maintaining a charitable foundation is, from an administrative perspective, very much like creating and maintaining a business.
The legal and accounting work that goes into establishing a foundation will typically cost in the neighbourhood of $10,000. And while foundations do not pay tax, they are still required to file an annual return. That means yearly accounting expenses, which come on top of the ongoing administrative work of managing assets held within the foundation.
If foundations were the only option for carrying out a philanthropic plan, they would be well worth the effort and expense. But there’s a better way.
A donor-advised fund is a third-party vehicle – offered by most community foundations and some asset management firms – that effectively outsources the functions that would normally be performed by a foundation, while achieving all of the same charitable goals.
Donor-advised funds offer tremendous flexibility and convenience, as they allow you to make a large donation in a given year, claim the donation tax credit for that year, but disburse the funds in later years to a variety of charities. With a donor-advised fund, you simply make the gift and provide instructions on how to disburse it, and the organization that runs the fund takes care of the rest.
The fee associated with this service is generally low – typically 1.0% to 1.5% for a $250,000 donor-advised fund. In some instances, the fee is based on the number of donation grants you request. In both cases, the fee is not tax deductible, but it does not reduce the amount your donation tax credit is based on.
In short, with a donor-advised fund, you’ll save time and money, and you’ll be able to focus your philanthropic efforts on the joy of giving, rather than on administration and accounting.
In-kind stock donations
One of the best ways to maximize the amount you give – and the tax benefit of giving – is to make in-kind donations of stock, rather than cash donations generated from realized gains. To illustrate, let’s look at a hypothetical example.
With the right planning, you can maximize the benefit received by your charities of choice, and increase the tax benefits of your generosity. Working closely with an experienced and knowledgeable Investment Advisor ensures that each component of your philanthropic vision is planned and executed as efficiently as possible, aligning all aspects of your intergenerational wealth plan – investment management, philanthropy and estate planning – with the values that define who you are.
John Tabet is Senior Investment Advisor at ViewStone Partners, an independent advisory team of iA Securities. The opinions expressed herein are those of Mr. Tabet alone and may not be aligned with the opinions and values of iA Securities or any of its affiliated companies. This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates. Industrial Alliance Securities Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.