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

Planned Giving : know the Planned Giving : know the rules, see the rules, see the opportunities!opportunities!

Presented by

DeWayne Osborn CGA, CFP

Lawton Partners Financial Planning Services Limited

Planned Giving : know the Planned Giving : know the rules, rules, seizeseize the the opportunities!opportunities!

Presented by

DeWayne Osborn CGA, CFPLawton Partners Financial Planning Services Limited

Planned GivingPlanned Giving

Overview

Rules and regulationsCase samplesResources available to youIdeal clients (donors)

Your Questions


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:


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 GivingPlanned GivingDonations generate tax savings (tax

credits)For example, Manitoba tax credit = 46%A $10,000 cash donation = $4,600 tax

saved75% of net income in year of gift + 5

years100% NI in year of death and previous

yearCompanies use 75% of incomeOperating vs Holding companiesTaxable income means nothing!

Planned GivingPlanned GivingCharities 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 GivingPlanned GivingExcess 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 GivingPlanned GivingDisbursement 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 GivingPlanned GivingA 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 millionCollege needs proceeds ASAP for

capital expansion (no 10-year direction possible)

If gifted in 2009 DQ = $3.2 millionIf gifted > March 4, 2010, DQ =

$140,000

Planned GivingPlanned GivingProperty, not servicesListed 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 GivingPlanned GivingQuebec Corporation purchases

$1 million Donors leave $1 million bequestPolicy pays corp. $1 million to

shareholders estateCash bequest saves $480,000 in

taxCharity gets a gift of cash it can

use right away

Planned GivingPlanned GivingMr. A

A Co

Life Insuran

ce

Charity

$1 million death benefit

$1 million tax free capital dividend

$1 million gift

Tax Receipt


AnalysisPV cost of insurance = $354,500PV of tax $480,000 tax savings = $283,000If no insurance, PV cost to transfer

$354,500 to shareholders (@24% 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!


Tax planning and portfolio restructuring opportunities for

advisors

Planned GivingPlanned GivingSell and Gift Gift Outright

FMV (POD) 100,000 100,000

Cost 60,000 60,000

Gain $40,000 $40,000

Taxable Amt of Gain $20,000 $0

Tax @ 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


Executor is 78 years old retired CAEstate leaving $8,000/year for 15

years to a university to fund a project

Calls University to discuss optionsWants to close the estate

Term Annuity Example:

Planned GivingPlanned Giving14 payments to UniversityEstate gifts $86,500 for a term certain annuity

Receipt issued for $86,500Executor closed accounts

Resolves Valuation Issues


Donor 91, wife 76, distrust financial planners calls making an inquiry

Wants to help the churchHeard about a $200,000 Gift Annuity.....

Needs to pay wife and kids - ages 53 and 51.

The New Endowment – Advantage

Possible Annuity Solution


• 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 GivingPlanned GivingFirst Annuity on Wife

Insurance Company

$75,000

Payment

$100,000 25,000Tax Receipt

Planned GivingPlanned GivingSecond Annuity Bequest

No Foundations!!

NEW....Possible Endowment Solution


• 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

80,000Tax Receipt

Payment

Sweetener: How much charity owned insurance will $40,000 buy on kids??


Planned GivingPlanned GivingReal 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


Possible sweeteners.............•Insurance with tax savings•Donor pays MV rent for use,= $1.3 million tax receipt


Ideal Client....MaybeBeen with you for 10+ years55-75 years oldPhilanthropic alreadyInsurableBelieve in the value you offer to

themCould gift $1million now or laterCould see kids involved later

Planned GivingPlanned Giving: :


Questions???

Thank You

DeWayne Osborn1-888-944-1144 (ext 256)

[email protected]


Questions???

Thank You


[email protected]


Questions???

Thank You


[email protected]

Easy Tax and Other Resources:• CGA Personal Tax Planning handbook•KPMG Tax Facts 2010-2011•Charities Section on PD Network (under Taxation)•http://www.cra-arc.gc.ca•http://www.irs.ustreas.gov/•http://www.charitylaw.ca/index.html•www.cagp-acpdp.org•http://www.givingandvolunteering.ca/•[email protected] •1-888-944-1144 ext 256


Questions??Questions??

Thank You

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

Documents

tax saved75

tax reliefwhat

planned givingproperty

planned givingadvantage

planned givingcharities

year of gift

tax free capital dividend

year of death