I want to leave a legacy
Financial success offers the opportunity for more than personal satisfaction. Put some of the wealth you've accumulated to work for future generations by leaving a legacy.
Giving back to your community or shaping the future by endowing developments in educational, cultural or faith institutions are ideal ways to leave a lasting legacy. Your BMO Nesbitt Burns Investment Advisor can help you explore them. Your Investment Advisor will work with you to create a philanthropic strategy, and decide whether to contribute now or through your estate.
Tax-advantaged Charitable Giving
With proper planning, you can reduce your total tax liability and maximize the value of your donations by donating the share directly instead of selling the shares and then donating the cash proceeds.
Charitable giving has always been an important part of social history and the spirit that inspires it is universal. Women in particular have traditionally been the driving force behind much of the charitable work around the world. A desire to give is part of the legacy we want to leave behind. In an effort to increase charitable donations, the federal government has created tax incentives when you donate appreciated securities to a registered charity. Securities that qualify for special tax treatment include shares, bonds and mutual funds listed on a prescribed stock exchange. As a result, with proper planning, you can reduce your total tax liability and maximize the value of your donations by donating the share directly instead of selling the shares and then donating the cash proceeds.
Here's how it works: if you are planning to make a $20,000 donation and you happen to have shares worth $20,000 (that cost you $10,000) you can either sell the shares and donate cash or donate the shares directly. Let's assume that you pay tax at 45% and that you've already donated $200 so far so that any additional donations generate a tax credit at the top rate.
- Sell shares and donate $20,000
- You'll pay capital gains tax of $2,250 (45% tax on one half of the $10,000 gain)
- The $20,000 donation tax credit will result in a tax savings of $9,000 (45% X $20,000)
- RESULT: you've given away $20,000 but the tax savings were $6,750 (the difference between the capital gains tax of $2,250 and the donation tax credit of $9,000)
- Donate shares
- There is no capital gains tax at the time you make the donation.
- The $20,000 donation tax credit will result in a tax savings of $9,000 (same as above)
- RESULT: you've given away $20,000 but your tax savings are the full $9,000
Whether you donate cash or the shares directly, you will receive a tax receipt for the full amount of the donation regardless of how the capital gain is treated for tax purposes. You may also donate shares acquired through employee stock options and flow-through shares but since these rules are more complex, you should consult with your tax advisor to determine what's appropriate for your situation.
December is an important month for charitable giving and year end tax planning. This year, take a more strategic approach by combining the two. To make the kind of impact you want, giving requires as much planning as does saving and investing. The role of a investment advisor is to both indentify and help you understand all of your options and assist you in making informed decisions around your charitable giving. Have a BMO Nesbitt Burns Investment Advisor contact you to ensure that your charitable goals are realized – during your lifetime, and as part of your legacy.
How we can help
Your Investment Advisor will work with you to create a philanthropic strategy, and decide whether to contribute now or through your estate.
Your Investment Advisor can also help you plan your investments to create wealth specifically for the purposes of philanthropy. We'll show you how to make philanthropy an integral part of your financial life, while continuing to meet all your other goals.
Advice in action: Liam
Liam is the president of an industrial design firm. His highly successful career has provided him and his family with a very comfortable life. Lately, Liam has felt the urge to give back some of the wealth the world has helped him build.
Liam considers his university education the major building block of his career, and he would like to show his appreciation to his alma mater. He's considering a number of options, including endowing a research chair or helping fund a scholarship. Liam has other ideas for his money, as well. He wants to provide his grandchildren with enough to fund their educations.
Liam has built an impressive investment portfolio. Now his Investment Advisor can help him explore how to best pass along his wealth. Liam's Investment Advisor may recommend setting up a donor-advised fund in the near future to help Liam's alma mater and other charities, and advise him on how to maximize any available tax benefits. His Investment Advisor can also help update Liam's estate plan so it fully reflects his wishes, including charitable donations and inheritances for family members. And for the grandchildren, Liam's Investment Advisor can recommend an immediate strategy for setting up trust funds on their behalf.