Charitable Giving with Denise Fernandes | E015
Transcript:
Jason Pereira: Hello, and thank you for joining me for the Wisdom of Wealth, a show where we help educate Canadians about fundamental financial literacy topics to help you make better and more informed decisions, and to know when and where to reach out for help. I'm your host, Jason Pereira today on the wisdom of wealth, we're going to talk about donating to charity.
Jason Pereira: There are several ways to donate to charity. There's the direct method by just giving them money, there's automated methods, there's something called donor advised funds and foundations, and there's through your estate. We're going to talk a little bit about each of those options.
Jason Pereira: The first way to donate is directly, which is just to make a one-time cash payment to the charity. This is great because it benefits the charity, but also benefits you through tax savings. How much? Well, on the first $200 of donations, you attract the lowest tax bracket as a credit. What this really translates into in Ontario is 20% off or $40 for 200 bucks of donation. After that, it depends on the province you're in, but again, in Ontario, it's about 40%. Basically, for every $100 you donate, you save $40 in tax, which can help your tax bill be reduced, but also help you donate more to charity because the government's actually paying for some of them.
Jason Pereira: Now you can donate and eliminate up to 75% of your total tax bill every year through donations if you chose to, or 100% on your death. If you actually are very generous and donate too much, and you don't have enough taxes paid to write off against, well then you can actually carry forward those balances for five years.
Jason Pereira: A number of charities have gone beyond just the one-off donations and will give you the option of donating to them on a regular schedule automatically. The way this is done is to go online and to set up your scheduled payment and the frequency. If you wanted to donate $100 a month to your favorite charity, simply by doing this online for various charities, not all of them, you can do so and then not have to worry about it. It just gets taken care of. Also several employers will have charitable donation programs that will allow you to deduct or basically donate off your paycheck every month and make it automatic.
Jason Pereira: The next way to give is through donor advised funds and foundations. The way these work is that you just simply make a large or semi-large contribution to an investment account, which will then earn return, and you have to donate 3% of the assets within that account to a charity or charities of your choice throughout the course of the year. Now, used to be that foundations required half a million dollars to get started, so really the purview of the very wealthy, but now we have these things called donor advised funds, which basically allow you to do the same thing for only a few hundred dollars. This is a great way to give because it's not just a one-off donation, it establishes a legacy. One that will feed money into charities even long after you're gone. They also serve as wonderful tools for teaching your family about social responsibility because oftentimes families will come together and determine which charities will receive funds from the donor advised fund or foundation every year.
Jason Pereira: The last way to give is, of course, when you pass away and you die. There's a number of ways to do this, but most commonly what happens is that you would name a charity as one of the beneficiaries of your will. The good news about this is that you can actually eliminate up to 100% of your estate tax bill with charitable donations. That is something that requires planning and also an executor who knows what they're doing, but it is doable
Jason Pereira: As for what to give, well really there's three different things. Now, everybody of course thinks of cash because that's the easiest way to give money. In fact, it's literally giving money. However, there's other ways that you can donate, specifically the use of property and insurance, and we're going to talk about both
Jason Pereira: Donation of property is the donation of something that has value other than cash. For example, real estate, stocks, bonds, mutual funds, even art. If it has value and is valued by the charity, they will be willing to issue a charitable receipt for it. It basically benefits you from a tax planning standpoint in two ways. First off, you can basically get the normal charitable credit that basically saves you tax, but also, if these assets have grown in value and if you were to sell them, there would be a capital gain. Well, that of course, is a tax to you. However, if you donate it without liquidating it, you don't have to pay that capital gain. You're eliminating that liability while simultaneously still benefiting from the charitable receipt. This is a very tax advantageous strategy for those who are charitably inclined, and it's one that if you are thinking of doing, get the right advice on because if you sell first to then give the money, you still have to pay the tax and you get the credit, but if you donate first, you don't pay the tax and you get the credit.
Jason Pereira: The last way to give is one that not a lot of people think about. That's through life insurance. How does this work? Well, a number of ways. First off, you can simply just name a charity, a beneficiary of your life insurance policy, so when you die, they receive money. Now the benefit of this is that you're multiplying your estate. The amount of money you pay for the insurance policy is less than the death benefit, so you're actually leaving a larger sum behind. The other way you can do it is by simply buying an insurance policy now, donating it to the charity and paying the premium on an ongoing basis. That way you received tax savings for each individual premium you pay every year, and when you pass away, the charity gets the death benefit.
Jason Pereira: If you have a preexisting policy that you no longer need, then there's also an opportunity there. Sometimes those policies might be worth a lot of money from a tax standpoint, in which case just donating the policy could result in tax savings. Today, not when you die. Lastly, sometimes people get to retirement and they're doing well, and then they start having these income streams that are lovely, like CPP and OAS, that they don't really need because they're already well off. Well, sometimes we'll tell people to take that money and buy an insurance policy and donate the insurance policy to charity, basically converting that unneeded income stream into a large legacy on behalf of the charity. There's really no limit to the number of ways we can do this. It's a really creative way to do it, but you need the right advice.
Jason Pereira: There's lots of ways to donate to charity, and frankly, more than you can count. If you want to take a more structured approach to donations, then there's lots of great planning that can be done in advance, and to help discuss that, I've invited my colleague and friend, Denise Fernandez, director of philanthropy for Plan International Canada to the studio today.
Jason Pereira: Today in the studio, we're fortunate enough to have Denise Fernandez, director of philanthropy for Plan International Canada. Denise, thank you for joining us.
Denise Fernandes: Happy to be here.
Jason Pereira: Denise, tell us a little bit about what it is you do.
Denise Fernandes: As the director of philanthropy, I get to work with donors to build out their legacy, whether it's something that they want to do now in life or in the future through their will.
Jason Pereira: Excellent. Tell me about the motivation. Why do these people feel the need to do something more than just a simple cash donation?
Denise Fernandes: I think this is really their passion for the cause. I used to work at SickKids, there was people that didn't have kids and that was their motivation behind their gift. Really, I see my role as really a matchmaker to find something that is meaningful to them that is also meaningful to the organization that I'm working at.
Jason Pereira: They come to you saying that, "Hey, what you guys are doing is valuable, important. I love it. I want to help." Then you basically try to connect them even deeper to the cause?
Denise Fernandes: Yeah. We often work with advisors as well. We want to make sure that how they're making this investment is the best way for them. We don't have the access to all of their financials and how that's working, so working with
Jason Pereira: I can solve that problem for you right now.
Denise Fernandes: Working with advisors is really a key to making sure that the legacy that they're going to leave is really impactful. I know you were talking about security as gifts, and that's really one of the best ways to give to charity. A lot of people give monthly and then when you think about could they give securities at the end of the year or through the year, those are ways that working with a financial advisor supports donors and also supports charities because they're able to give more.
Jason Pereira: Yeah. No one loves capital gains and like I say, you basically have two options, either pay the tax and keep the rest of it or just donate to charity. If you have the room to do so, you know what? That sometimes kills two birds with one stone very nicely.
Denise Fernandes: Absolutely.
Jason Pereira: Yeah. One of the things that's also I didn't mention earlier, and I've actually helped my client with this before, even private corporations. If you have a successful business, you can actually move some or all of your shares of the corporation into your own charity, which you could then... Or to a charity such as
yourself. When these people come to you, are they looking for one-off donations? This has become like an annual pledge for them. Are there projects they're sponsoring? How is this structured?
Denise Fernandes: It really depends on the donor. Sometimes they come to us with an idea in mind and we work through and make sure that we can make those things happen, and other times we have to dig deeper and figure out what is it exactly that they're looking for. Sometimes donors come to us and just say, "I want to help," and so we have to figure out okay, well, what would be meaningful to you and how can we make this something that is something you'll be proud of for so many years to come?
Jason Pereira: When most people think of a charity, they think of one cause, but really you guys are large organizations with any number of projects. I guess what you're probably talking about there is almost like a dating service. You're trying to figure out which of the different 20, 30 different things you guys are handling is this person could be most connected to and most impactful on right?
Denise Fernandes: Absolutely. People often refer to fundraising as sales and I completely disagree and I think I'm a matchmaker. I really do try and match the donor to the project that they're passionate about and find something that is meaningful for both the charity and the donor. It's so great to see when a donor has made such a huge impact and how they've made that gifts. A lot of times it's in memory of someone, and so really having something that they can hold onto and memorialize it, that it has made such an impact to so many other people is really something that I really enjoy.
Jason Pereira: What age and stage are people coming to you? Are you seeing mainly people when they're retired and old or are they coming to you after they've had some sort of successful event? What is the typical makeup of these people?
Denise Fernandes: It varies. It's very different in terms of when people are coming to us. As we're looking at charities, people give in various different ways. We have a demographic for the monthly givers and it starts maybe in your forties, families, they have children, and then it goes all the way into people that maybe had started watching from your TV, they do the [inaudible 00:11:50] mail and they're in their seventies and eighties. The different types of giving are sometimes age specific and they're different based on the different charities as well. Having worked at a couple of different charities, I've seen that. What is a monthly donor at one organization is not really the same demographic as a monthly donor as in another organization. It's interesting to see, but I think when we look at Canadians, we see that over 80% of Canadians give to charity, and so really it is a broad spectrum and depending on the age, they do give differently, and depending on their wealth, they give differently as well.
Jason Pereira: Absolutely. I would guess it really depends upon what connected with them when, at what stage of life. I'm sure some campaigns work really well for people, like say in their forties, when maybe those commercials really resonate with them and they stick with them forever. How much of this donation work is being done alive versus through their wills? Are they waiting to pass on before they pass on the money to you, or are they doing it while they're alive?
Denise Fernandes: We typically find more people give in life. We have over 80% of Canadians giving in life and it's about five to 10% of Canadians leaving a gift in their will to charity. There's a huge disconnect between giving in life to what we see through estate giving.
Jason Pereira: Yeah. Unfortunately I think that people confuse the concept of estate planning, which is making sure your money goes where you want it to, which may include your charities as well, with the will. They think the will is what they need. Yeah, the will is the endpoint. It's the document that's the result of the planning, but if you just go to a lawyer and say, "I need a will," the lawyer's going to go down a checklist and they're going to say, "Do you want to give money to charity? Yes? No?" That's not much of a conversation around what it is you want your legacy to be, so that's problematic.
Jason Pereira: When you work with a planner and they know what it is that you care about and that matters to you, they can help incorporate that into it. A friend of mine who I'm sure you know, Mark Halpern who's a well-known advisor in the philanthropic space, he says, "Look, you've got three people that your money's going to when you die. There's your heirs, there's the government, and there's a charity. Frankly, the heirs are getting something, and unless the charity gets something, the government's getting the rest of it." It's a way of, like I said earlier, you can eliminate it 100% of the taxes due on your death through charitable donations. I think if more people knew about that and how to structure around that, we would see better outcomes in that regard.
Denise Fernandes: We definitely need more advisors like you because I think a lot of people, as they're making those plans, they want to leave something to family and as they think of Oh, if I leave this to charity, it's less to my family, but it really it's the same to my family and it's less to taxes. The more we get the word out, I think the more impact people will have in charities and they'll actually be able to carry forward what they've been doing through life. For 20, 30, 40 years they've been giving to these charities, and so being able to make an impact, a lot of times I've seen families see the impact that their loved one has made and they're so proud and happy that something has been left behind as their legacy. That it is all worthwhile that those gifts were made.
Jason Pereira: Yeah. I would encourage people to think deeper about the giving that we actually do because I think a lot of us are inundated with requests to sponsor people's charitable rides or charitable initiatives, and we get this at work from coworkers, friends, family, whoever it is, we give 50 here, a hundred here, but we're not really connecting to the charity and the cause. I think when you take the time to do that it just becomes so much more meaningful.
Jason Pereira: When, in your case, just as an example, when do people make that leap between just the regular donor to, "Hey, let's have a conversation about this."? What is it that basically creates that desire, that need to go beyond just giving a check whenever somebody asks for it?
Denise Fernandes: There's times in people's lives, we've seen sometimes a loved one has passed and they've passed without a will, and so all of a sudden they're like, "Oh, I need to create one so that my loved ones don't go through the same experience." Sometimes it's retirement. They're looking at my career has been very fulfilling, how do I fill in that gap and how do I work with a charity to do that? Really people come at all different stages, but they are with something in mind of really being part of something. We've seen that over the years, that people don't want to just give money, they want to feel like they're part of the cause and part of the charity and part of the solution, and they are. It's a privilege for us to be able to make that connection for them as well.
Jason Pereira: Yeah. Well, the term giving is to part with something. But if you're donating and you're deeply involved, it's you used the term investment in several cases, and I think that really is. Every time we give money to a charity, we're investing in their cause. Frankly, I'm glad people like you exist out there to help others basically help better plan their legacy. Denise, thank you for taking the time to come on. Where can people find you?
Denise Fernandes: I'm on LinkedIn. Denise Fernandez. You can find me there. I'm always happy to work with people. I know lots of people in the charitable sector and I've always made a cause, even working with advisors. If you have someone that you wanted to connect to, I'm happy to make that connection as well. Obviously, I work for a charity and would be happy to help in that sense, but always happy to just help the charitable sector overall to make sure that people are thinking of charity, and that this is something that we can continue forward and and have a legacy for forever.
Jason Pereira: Fantastic. Thank you so much for taking the time.
Denise Fernandes: Thank you.
Jason Pereira: And thank you as always for taking the time to join us today on the Wisdom of Wealth. I hope you better understand the world of charitable giving and how it can benefit not just the charity, but yourself as well. As always take care.