Charitable Donations at Death

Charitable giving is in the minds of many Canadians. Donations can significantly impact organizations and the communities they serve. According to an online survey conducted by Pollara Strategic Insights in 2022, 83% of the 1,276 participants had donated to a charity or planned to do so. Indeed, Canadians love to give; and charitable donations at death, which can be a powerful way to support the causes you care about even after you are gone, is one way to do that.

There are various ways to make charitable donations at death; each has its own benefits and considerations. One common method is to include a bequest in your will, which directs a specific amount or percentage of your estate to the charity or charities of your choice. This type of donation allows you to support a cause you believe in and can also provide tax benefits for your estate. The following three examples highlight these benefits.

Let us consider a couple, Tim and Eden, who passed away together at the end of 2022. They each have the following investment accounts: $250K RRIF, $150K non-registered account, and $100K TFSA, and these make up their estate. We assume that each non-registered account has a cost base of $100K.

Example #1: No charitable giving; four beneficiaries in the will:

In addition to the CPP, OAS, RRIF payment, and investment income, the entire value of the RRIF account is added to the income on the final tax return. Also, capital gain taxes must be paid on the $50K gain for the non-registered account. The tax bills on the two final tax returns will total $242,039; therefore, each of the four beneficiaries will receive $189,490.

Example #2: In addition to the four beneficiaries, $150K is given to a charity in cash:

In this example, all of the six investment accounts of the deceased are liquidated, and distributions are made out of the estate in cash after taxes are paid. Because of the donation tax credit, the total tax bill drops to $167,259, and after the $150K cash given to the charity, each of the four beneficiaries receives $170,685.

Example #3: In addition to the four beneficiaries, $150K is given to a charity in kind:

In this example, the executor takes advantage of the capital-gain tax exemption when a donation is made in kind. As a result, the total tax bill drops to $154,876, and after the $150K given to the charity, each of the four beneficiaries receives $173,780.

Obviously, the four beneficiaries in Examples #2 and #3 would each receive a bit less, but the charity receives a significant amount.

When considering making a charitable donation at death, working with an experienced attorney or financial advisor is essential to ensure that your wishes are carried out most effectively. It would be best to research the charities you wish to support to ensure a strong reputation and that they are truly making a meaningful impact in their field. Also, it is recommended that you talk to your beneficiaries and executor about your intentions.

In conclusion, charitable donations at death can be a powerful way to leave a lasting legacy and support the causes you care about. By researching and collaborating with a trusted advisor, you can ensure that your donations have the most significant impact possible and help improve the world for a better tomorrow.