Many of us have charities we donate to throughout our lifetime to help support causes close to our hearts. Whether it's the gift of time and energy or a monetary donation, most Canadians are familiar with charitable giving. Yet, there is an easy way to build a lasting impact that is often forgotten - legacy giving.
Research from the Canadian Association of Gift Planners shows that only 5% of Canadians leave a charitable gift in their will. A survey by Willful, an online estate planning service, also found that a third of Canadians haven't thought about it yet or are undecided.
So what are legacy gifts? And if you're interested, how do you plan for one?
In this article, we are taking the opportunity to educate Canadians on the power of legacy gifts and all the benefits that come with leaving them.
What are Legacy Gifts?
Legacy gifts are a little bit different than donations. A legacy gift is a gift to a charity or non-profit organization that actualizes when you pass away. The gift can be anything from a piece of property, cash, or a percentage of your estate. Legacy gifts play a key role in supporting the initiatives of charitable organizations for years to come.
While donations usually are the answer to the question "how can I help today?", legacy gifts are the answer to "how can I help tomorrow?" and "how would I like to be remembered?".
What Are the Benefits of Leaving Legacy Gifts?
Legacy giving is a way to leave a lasting legacy of generosity. It makes causes that you care about an important part of your life story!
People often worry that leaving a legacy gift means that there will be less to give to their loved ones. The truth is, you can make a legacy gift without taking away from the gifts left to your family and friends. Benefits of leaving a legacy gift include:
- Leaving a larger legacy: Legacy giving doesn't affect your income today. This allows you to leave a more substantial gift than otherwise may be possible in your lifetime
- Tax benefits: The Canadian government has created valuable tax incentives to encourage Canadians to leave legacy gifts. When you leave a legacy gift through your will, your estate receives a tax receipt for the full value of the gift, which adds a tax credit to your final income tax return. This can actually help to maximize the value of your residual estate for your beneficiaries
- Inspiring others: Your gift might also cause others to think about their own philanthropic goals. Maybe you'll inspire somebody to give back as well!
How Can I Leave a Legacy Gift?
There are a few different ways to leave behind a legacy gift. Let's dive into some of the common ones.
Legacy Giving through Your Will
Your last will and testament is a legal document that outlines how you wish to distribute your assets. This includes property or money after you pass away.
A legacy gift, also known as a charitable bequest, can be included as part of your estate plan in two ways. First, you can leave a specific gift to an organization of your choice. A specific gift can be anything from a lump-sum cash amount, property, to pieces of art. These gifts are given separately when you pass away, and are not included in your residual estate. (Your residual estate is everything that's left after debts/taxes are paid and specific gifts are distributed).
Instead of or in addition to leaving a set amount, you may leave a percentage of your residual (remaining) estate to a charity. The organization will receive the cash value of the distribution you gave them from your overall estate. While a cash gift will remain constant over time, a percentage of your residual estate can grow over time. This results in a higher potential gift to the charity of your choice!
Regardless of how you decide to make a will, it is easy to make a legacy giving part of your estate plan. Many online will companies, like Willful, have also made charitable contributions extremely easy by incorporating it into the will-making process.
Charitable Gifts through Life Insurance
Many people opt to make their charitable contributions through their life insurance policies .Life insurance is an agreement between you (the policyholder) and an insurance company to provide a tax-free sum of money to your designated beneficiaries. if you were to pass away. There are several ways you can leave a gift through life insurance:
- Name a charity as a beneficiary: By naming a charitable organization a beneficiary of a new or current life insurance policy, the charity will receive a monetary payment at the time of your passing. Your estate will receive a tax credit or the amount of proceeds, which can help offset the taxes on your final income return.
- Transfer your current policy: This will transfer ownership of your current life insurance policy to the charity of your choice. In return, you would receive a tax credit for the current value of the policy in addition to any premiums you pay.
- Create a new policy: It's also possible to purchase a net new policy, with the charitable organization named as the owner. You would receive a yearly tax credit for any premiums you pay on the policy.
The final amount of your legacy gift will depend on the coverage amount of your life insurance policy. It's a good idea to consider any possible charitable gifts when deciding what life insurance policy best fits your needs.
Charitable Gifts through Retirement Savings Plans
Did you know your retirement savings can be a way to leave leave legacy gifts? Another fantastic way for Canadians to leave a charitable contribution is through RRSPs (Registered Retirement Savings Plans) and RRIFs (Registered Retirement Income Funds). These types of gifts qualify for tax credits. This helps offset the tax implications of the withdrawal on your final income tax return.
All Legacy Gifts Leave an Impact
While legacy giving makes it possible to leave much larger gifts than otherwise possible, it's important to remember that you don't have to be wealthy to leave a legacy gift. You can leave as much or as little as you want. There is no gift too small to make an impact on a cause close to your heart!
It takes a few minutes to leave a gift to charity, but it creates a legacy that lives on forever.