Planned Giving : know the rules, see the opportunities! Presented by DeWayne Osborn CGA, CFP Lawton Partners Financial Planning Services Limited

Planned Giving : know the rules, seize the opportunities! Presented by DeWayne Osborn CGA, CFP Lawton Partners Financial Planning Services Limited

Planned Giving Overview Rules and regulations Case samples Resources available to you Ideal clients (donors) Your Questions

Planned Giving What is a Gift - four conditions: Transfer of property (not services) to charity; and Transfer must be voluntary; and No benefit to donor, or someone selected by the donor. Must be accepted by the charity.

FMV exceeds the Advantage received by donor Advantage is: any consideration received by the taxpayer Or any person related to the taxpayer; Eligible Amount = FMV of contribution less Advantage Amount that can be claimed for tax relief What is a Gift: Planned Giving

Advantage to a Donor: Any property, service, compensation, use or other benefit that the taxpayer, or a person or partnership not at arm's length, has received, obtained, or enjoyed, or is entitled, either immediately or in the future and whether absolutely or contingently, to receive, obtain or enjoy. Planned Giving

Donations generate tax savings (tax credits) For example, Manitoba tax credit = 46% A $10,000 cash donation = $4,600 tax saved 75% of net income in year of gift + 5 years 100% NI in year of death and previous year Companies use 75% of income Operating vs Holding companies Taxable income means nothing!

Planned Giving Charities must spend all of their resources on charitable activities (80%) Fundraising, some administration, political activities, etc. are not charitable activities Disbursement quota – Revised March 4, 2010 Opportunity for Advisors to lock accounts into private foundations

Planned Giving Excess Holdings Regime Any class of shares If Foundation own <2%, No action If Foundation owns > 2% AND another non-arms length person owns <18%, Foundation must report to CRA annually If Foundation owns >2% AND a non-arms length person owns >18%, must sell.

Planned Giving Disbursement Quota (DQ) Previously 80% of receipted value + 3.5% of the FMV of assets not used for charitable activities or administration. Now, just 3.5% rule. Donors can make gifts today that used to have to wait until death = planning opportunities.

Planned Giving A local college is told of a $10 million policy was to be gifted. Premium $400,000/yr for life. Annuitant 6-8 year life expectancy FMV = tax receipt = $4 million College needs proceeds ASAP for capital expansion (no 10-year direction possible) If gifted in 2009 DQ = $3.2 million If gifted > March 4, 2010, DQ = $140,000

Planned Giving Property, not services Listed securities, mutual funds and segregated funds = no capital gains inclusion CDA = tax free $$ If a taxable capital gain incurred, contribution room can be bumped by 25% of the taxable portion Charities are now using in illustrations AND BIG insurance figures prominently

Planned Giving Quebec Corporation purchases $1 million Donors leave $1 million bequest Policy pays corp. $1 million to shareholders estate Cash bequest saves $480,000 in tax Charity gets a gift of cash it can use right away

Planned Giving Mr. A A Co Life Insurance Charity $1 million death benefit $1 million tax free capital dividend $1 million gift Tax Receipt

Planned Giving Analysis PV cost of insurance = $354,500 PV of tax $480,000 tax savings = $283,000 If no insurance, PV cost to transfer $354,500 to shareholders tax) = $269,420 Net savings of creating $1 million to charity with $354,500 otherwise paid out to shareholders = $13,580 Life = 12 years at 4.5%. Annual premiums = $37,200

Donate Shares to Acquire Martha makes a $25,000 gift of listed securities to the Museum She sells another $50,000 of securities and uses the tax receipt to offset any taxes owing She gets her new kitchen, the Museum gets a gift! Planned Giving Tax planning and portfolio restructuring opportunities for advisors

Planned Giving Sell and GiftGift Outright FMV (POD)100,000 Cost60,000 Gain$40,000 Taxable Amt of Gain$20,000$0 39%(7,800)$0 Net Tax savings (50%)42,200$50,000 If shares held in PC, $60,000 paid out tax free savings another $11,200 in taxes

Planned Giving Executor is 78 years old retired CA Estate leaving $8,000/year for 15 years to a university to fund a project Calls University to discuss options Wants to close the estate Term Annuity Example:

Planned Giving 14 payments to University Estate gifts $86,500 for a term certain annuity Receipt issued for $86,500 Executor closed accounts Resolves Valuation Issues

Planned Giving Donor 91, wife 76, distrust financial planners calls making an inquiry Wants to help the church Heard about a $200,000 Gift Annuity..... Needs to pay wife and kids - ages 53 and 51. The New Endowment – Advantage

Possible Annuity Solution Planned Giving Kids too young to for annuity Suggest 2 Gift Annuities. First on wife’s life, then on kids life via her will. Gift = 25% of amount gifted in both cases. Total Tax Savings $25,000 on both

$75,000 Payment $25,000 Tax Receipt Planned Giving First Annuity on Wife Insurance Company

$75,000 Payment $100,00025,000 Tax Receipt Planned Giving Second Annuity Bequest No Foundations!!

NEW....Possible Endowment Solution Planned Giving Establish a $200,000 endowment to pay wife and kids for life Actuary says life interest. = 60%, thus gift = 40% of amount gifted. Church gets 100% cash or securities. Likely will not work for Foundations

$200,000 Payment 80,000 Tax Receipt Payment Sweetener: How much charity owned insurance will $40,000 buy on kids?? Planned Giving

Real Estate Gift – Post March 4, 2010 Donor 82, wife 65, in Alberta calls asking $1.3 million BC cottage – wants to avoid BC probate Donor has other real estate all over Canada Want to fund a named endowment with the proceeds from the cottage Charity in Saskatchewan

Possible Solution Gift now with right of use for life Donor agreement Advantage = 35% of FMV Tax receipt = $845,000 Charity sells when donors pass away Planned Giving Possible sweeteners Insurance with tax savings Donor pays MV rent for use,= $1.3 million tax receipt

Planned Giving Ideal Client....Maybe Been with you for 10+ years years old Philanthropic already Insurable Believe in the value you offer to them Could gift $1million now or later Could see kids involved later

Planned Giving :

Questions??? Thank You DeWayne Osborn (ext 256)

Planned Giving : Questions??? Thank You DeWayne Osborn (ext 256)

Planned Giving : Questions??? Thank You DeWayne Osborn (ext 256)

Easy Tax and Other Resources: CGA Personal Tax Planning handbook KPMG Tax Facts Charities Section on PD Network (under Taxation) ext 256 Planned Giving

Questions?? Thank You