Gift Planning with Denise Fernandes | E051

Connecting with charities to find purpose.

In this episode of Financial Planning for Canadian Business Owners, Jason Pereira, award–winning financial planner, university lecturer, and writer, interviews Denise Fernandes, Executive Director of Planned Giving for Diabetes Canada. Denise works with donors in life and assists them in planning gifts in their will!

Episode Highlights:

  • 1:16 – Denise Fernandes introduces herself and her profession.

  • 1:59 – What typically drives donors to get more involved?

  • 3:26 – From Denise’s end, what does the donor process look like?

  • 4:35 – What other types of donations has Denise helped structure in the past?

  • 5:25 – Jason and Denise break down flow-through shares.

  • 8:34 – Has Denise seen a lot of people make the charity the beneficiary of their RSP?

  • 11:02 – What other tricks does Denise have up her sleeve?

  • 13:02 – How many conversations is Denise having around giving in the estate?

  • 14:58 – Jason and Denise talk about working with a lawyer vs. working with a planner in advance.

  • 16:35 – How does Denise keep the donors involved in the charity after the donation has been set?

  • 17:50 – Jason and Denise discuss a desire to leave a legacy.

  • 22:31 – What are the first steps when working with Denise?

3 Key Points

  1. Denise is not a financial advisor, but she does work in coordination with the financial advisors of her donors to plan gifts in both life and in their wills.

  2. Ontario has the lowest credit rate for charitable donations in all of Canada, meaning that many people don’t get the full tax deduction that they might have thought.

  3. Charities really start to get involved with the estate planning process when donors want something very specific involving their donation.

      

Tweetable Quotes:

  • “This all comes down to donating things in kind versus in cash...If you donate in kind, you don’t get the tax bill but you get the tax credit.” – Jason Pereira

  • “There is no escaping the taxman. Unfortunately, there is escaping the charitable request, which is not cool.” –  Jason Pereira

  • “If you want something specific at a charity, if you want something named, if it’s a scholarship at a university, if it’s an endowment somewhere, that’s where the charity really needs to be involved.” – Denise Fernandes

  • “People often criticize millennials for wanting to feel purpose in their job, yet, meanwhile, here we are talking about how we can help boomers feel purpose in their death.” – Jason Pereira

 

Resources Mentioned:

Transcript:

Producer: Welcome to the financial planning for Canadian business owners podcast. You will hear about industry  insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews  with different experts with their stories and advice, you will learn how you can navigate the challenges  of being an entrepreneur, plan for success and make the most of your business and life. And now your  host, Jason Pereira. 

Jason Pereira: Well, welcome. Today on the show I have Denise Fernandes, executive director of Planned Giving for  Diabetes Canada. Denise is an accomplished expert in the field of planned giving having worked with  several major charities and helping donors figure out how they can both A, connect with the charity that  they are trying to help and B, figure out innovative ways or to plan their giving us more than just cutting  a check on an annual basis. So I brought her on the show to talk about the motivations, the methods,  and kind of strategies that basically would lead to people doing large gifts to charities. And with that,  here's my interview with the Denise. 

Jason Pereira: Denise, thanks for taking the time today. 

Denise Fernandes: Thanks for having me on. 

Jason Pereira: So Denise Fernandez, you have a very long title that goes beyond what I said, which was director of  Planned Giving for Diabetes Canada. Tell us what it is you do for a living. 

Denise Fernandes: So I have the pleasure of working with donors at all levels, both in life, on the major gifts side, as well as  working with donors on planning for future gifts and gifts in their will. 

Jason Pereira: Excellent. So that's a very simplified way of saying, I deal with giving money to charities, but what we're  actually going to be talking about is some of the most complex gifting to charities that happens in the  country. So let's start off with the motivation. So I've had other people talk about charitable giving on  the show, people you know like Mark Halpern, for example, and basically people are benevolent, or can  be. So people can just cut checks to a charity, but what typically drives them to get more involved with  one or another charity on a deeper way to give larger gifts. 

Denise Fernandes: I think a lot of people have a connection to the cause and I think it makes the most sense to find a  charity that you're passionate about and really focus on how you can be involved and how you can  invest in a charity to have the impact that you want to have in this world. I did simplify that it's a gift and  it's connecting, but there's so many strategic ways of giving that are not giving cash. And so that's really  where I work with advisors like yourself to really make sure that we are getting the maximum giving  with the maximum advantages to the donor as well.

Jason Pereira: Excellent. I'm going to borrow from Mark, one of his favorite sayings on this is when you pass away, you  basically have three choices is to get your money, your, your beneficiary, your charity of choice or CRA,  pick two. And that's a cut of bumbling here. And that's just a simple way of saying that, frankly, there are  tax incentives to how you give money to charity that doesn't have to happen when you die, it can  happen while you're alive, that can really be kind of forced multipliers and basically get more money in  the hands of the charity than would otherwise be done in just giving cash because you're reducing the  tax burden on the individual. So I want to explore some of those. Let's talk about how people get started  in your job first of all, when people come to you and say, "I've got deep connection to this cause  because I've had this issue, my family members have had this issue." What does the process look like  from your end, before we even start talking about how they're going to give? 

Denise Fernandes: So first and foremost, I am not a financial advisor. I have been in this world for about 15 years so I have  really gotten to know how some of this works, but I always do refer the donors to talk to their advisors  to make sure that whatever we discuss makes sense for them. And so I work with the donors to see  what impact do they want. So there's two ways of saying, how big a gift do you want? What impact do  you want? So it kind of comes up both ways. Sometimes it's like, "Oh, my accountant says I have to give  a hundred thousand dollars so I don't have to pay taxes." And then we work around what a hundred  thousand dollars can do. And the other times it's like, "I've come to a part of my life where I want to give  back and how do I do it?" And we'll go through, "Okay, well, what assets do you have that we can work  through with your advisor as to what makes sense and what impact do we want to have either just in  this tax year or over multiple years as well?" 

Jason Pereira: Excellent. So the obvious, easiest thing to do, assuming that there's no other tax issues there is to give  cash, give cash personally. But let's talk about alternatives. So what other types of donations have you  helped structure in the past? 

Denise Fernandes: So cash is still tax advantageous. We're lucky to live in Canada and you do get money back for any cash  gifts that you give, but there are other ways of giving that give you more back. And so one of the things  that I had started at sick kids was actually looking at life insurance. And so life insurance is often seen as  something that give to and you just have there, but how about looking at life insurance as an asset? So what does that look like? And so working with actuaries to take on life insurance policies at certain  charities, and that's been a way of doing it. And it depends on where you need your tax. Is it in your  state or is it in life right now? So worked on several of those gifts with advisors. Also, we have flow  through shares, which are a little bit interesting, I don't know if we want to get into... 

Jason Pereira: Yeah. So let's tackle both of those. I'll give some background before we get into that. So the first one is,  and for those who hear some tapping, for those of you who know and who heard a previous podcast,  my son is taking remote kindergarten right now in COVID. And right now he's on some sort of pencil  tapping exercise. So if you hear that, I apologize. So lets starts and go back to the insurance. So there's  various methodologies for giving insurance policies, both personal and corporate. We're not going to  dive in deep here with that simply because Mark and I beat that horse to death on a previous podcast. So if you want to know more about that, if you have, if you want to donate a smaller amount that a  larger amount through insurance, or if you have an insurance policy you no longer need personally or  corporately, I highly suggest you go back and listen to that because it can be incredibly beneficial,  especially if it's something you were going to get rid of in the first place, suddenly it can become a  massive asset. 

Jason Pereira: And I'll just skip next to flow through shares, explain that, and we can come back and you can tell me  about how that works. So flow through shares are a type of investment that have certain tax benefits.  But the reality is that you will often invest a certain amount of money into it. But then what typically  happens is through tax incentives, the cost base ends up being a fraction of what it was that you actually  invested. So what then happens over time is when you want to cash them out, even if they stayed the  same, you have this large deferred tax liability. So talk to me about, and actually I would say, it's not just  flow-through shares. Even stocks with large deferred tax liability, whatever it is. So what we're really  talking about is assets with deferred tax liabilities. Talk to me how that works. 

Denise Fernandes: So it varies very much by province. I'm definitely not an expert, but rely on many experts to make these  things happen. But it is a very low cost per dollar type of giving. You put some extra money up front, but  you do get it back. And so, depending on your province, it's about 20 cents on the dollar that you're  getting. So if you are giving $20,000, your $20,000 can now be a hundred thousand dollars to the  charity. And so there's those benefits of really, how do you maximize your giving there? 

Jason Pereira: Yeah. And what we're doing there is essentially, and this is, just to go back on some tax stuff, this is  comes down to donating things in kind versus in cash. So people think, "Oh, I'm going to have this profit.  I'm going to sell this asset. And basically then donate that money to charity." The problem is you trigger  a tax bill and then you get a tax credit. If you donate in kind, you don't get the tax bill, but you get the  tax credit. So massively advantageous. So basically this is done with marketable securities. Any other  examples of donations with deferred capital gains that you've seen that get done? 

Denise Fernandes: Deferred capital gains. Well, there's other ways, not deferred capital gains, but as you know, RSPs are  very highly taxable at the end of life. They roll over to your spouse, but nobody else. And so you get  about half of what you've put in back because you haven't paid taxes your entire life on them. And so  giving to, or just transferring them to a charity, gives you the tax receipt and just wipes out the taxes on  those. So it's not really a capital gain savings, but it is a tax savings. 

Jason Pereira: Well, that's a lot bigger than capital gains. Now we're talking about full income. So actually I will say,  that's one strategy I haven't seen a lot of. So have you had a lot of people or a lot of people you've  spoken to have just said, "You know what, I'm going to make the RSP the charity the beneficiary of my  RSP." 

Denise Fernandes: We haven't seen a lot of it, but we have seen some. There's a program that really talks about it, it's one  of our motivation program that talks about it as the 62nd bequest. Your RSPs is a beneficiary form so it  goes outside of your will. So you can really make an impact to charities by making a charity a beneficiary  of your RSPs for sure. Hopefully we'll see more of that in the future. 

Jason Pereira: Well, I'm actually surprised I haven't even talked about that or heard more of that strategy. And now it  actually is a little shameful, it actually hadn't occurred to me as much, but it actually makes a lot of  sense because the beneficiary receives the full amount of the accounts. Let's just say, we'll use a round  number of just like half a million dollars, just a big round number. Half a million dollars. The charity  receives that, issues of tax credit to the estate. What people don't realize and how this works is that the  beneficiary receives the money, but the tax bill goes to the estate. So we always caution people, don't  say, "I have a half million dollar RSP and a half million dollar cottage, I want to leave one to each kid."  You haven't factored in the tax bills. That that can cause all kinds of problems because the one who gets  the RSP could stick the other one with the tax bill, and there's plenty of cases in precedent court that  basically have proven that that's the case and sticks. 

Jason Pereira: So what you're doing there is you're effectively giving it to the charity, wiping out most, if not all of the  tax bill on the RSP, that's not a bad strategy. I kind of like that. I'm actually quite surprised I don't see or  hear more of that. Although I will caution people on one thing, those of us who live in Ontario, Ontario  has the lowest credit rates for charitable donations in the country. So it does not wipe out the entirety of the tax bill. I've seen some people, unfortunately bungle that up and be surprised that they didn't get  the full tax deduction that they thought they were going to get. So it is what it is. 

Denise Fernandes: I've experienced where we were a charity, we were supposed to get the entirety of the state, but the  brother received the RSPs and we ended up with zero and the brother ended up with a whole lot of  money. So it works even in the same way for insurance. 

Jason Pereira: So the estate named the charity the beneficiary, but the only thing they had left was the RSP. And  because of travel outside the estate, the brother has just basically said, "Thank you very much." Give  you the middle finger and walked off. 

Denise Fernandes: Yeah, pretty much. We tried [crosstalk 00:10:42] but it didn't really work. 

Jason Pereira: Yeah. Well, you technically have no legal entitlement there. And for the record, CRA will go after the  beneficiary if there's nothing in the state to cover it. So there's no escaping the tax man. Unfortunately  there is escaping the charitable bequest, which is not cool. Anyway, so that's interesting and creative.  What other tricks do you have up your sleeve that I haven't seen before? 

Denise Fernandes:Most of our charitable bequests in the charitable sector come from wills. So it's bequests, I'd say 90% of  our gifts come through that way. And then we have life insurance where, we're a beneficiary or not, or  we are the owner and beneficiary of life insurance. There's some older kind of things like charitable gift  annuities, which really don't make sense right now with the interest rates. We have seen those from  time to time. And there's gifts of lands, people leave their homes and things like that. So really the in kind type of guests. We've had anything from art to certain collections of things and jewelry. And we've  even had gold teeth at times when we've been a beneficiary of an entire estate. 

Jason Pereira: Hold on. So someone left you their teeth? 

Denise Fernandes: No they left us their entire state and part of what was in their assets was gold in the form of a gold  tooth. We didn't get much for it. We went to the pawn shop and got probably $25 for it, but it's one that  sticks in my mind. 

Jason Pereira: Family lawyers and the estate lawyers have some of the most fascinating stories. Family lawyers get to  see families unfortunately at their worst when things are breaking up so you get some crazy family  dynamics. Estate lawyers get to see the family dynamics again differently, but they also sometimes get  to see the weirdest inheritance stuff. One of the weirdest things that I heard left in someone's house  was a Canon, circa world war one or something like that. So, that was a little bit shocking. But gold tooth  left in the estate, that is new, I haven't heard that. You live long enough you see everything. So I want to  spend a little bit of time on the estate planning side of this. So again, as the conversation with Mark  went, your heirs, the charity or the tax authority, pick two. So the conversation around putting it into  the estate, how many of these conversations are you having and how many people do you see actually  using this as a primary method of giving? 

Denise Fernandes: On the charitable side, people definitely work with their advisors, but as they think through the impact  they want to make they'll start involving the charity or at least I hope they do, because if you want  something specific at a charity, if you want something named, if it's a scholarship at a university, if it's an  endowment somewhere, that's where the charity really needs to be involved. And we work very hard on  trying to get future gifts that don't show up in the year that we're working on them. And so letting us  know that it's something that you've thought of, there's a lot of recognition programs that really get you  involved so you can see impact that your gift will have in life. 

Denise Fernandes: And that's really where we get involved and working with the advisor, the lawyer that is working on  their state plan, the advisor that's working on their estate plan, that's who we want to work with in  conjunction with the donors, so that we make sure that whatever they want is what they get, because  once they're gone or once we receive the gift, we can't go back to them and say, "Is this what you  wanted?" Because a lot of times in the will, things are not considered and advisors don't know what  charities are going through or do we accept endowments under a certain amount? There's a lot of  intricacies on the charitable side that we'd love to work with donors on to make sure that their wishes  are exactly as they would like.

Jason Pereira: Yeah. And this is when we're all plugged advisor's ability to help with this, because I think we discussed  what percentage of Canadians actually leave money to charity in their wills? It's a pretty small one, isn't  it? 

Denise Fernandes: It's five to 10% right now. 

Jason Pereira: Versus how many actually donate during their lifetime? 

Denise Fernandes: 80 to 85%. 

Jason Pereira: Yeah. So that's a big spread. And I have to think that part of the problem is looking at the will or estate  planning as just the act of getting the will. And I've seen it and I've participated in these things. And  lawyers will ask the question, "Do you want to leave anything to charity?" But if someone hasn't stopped  to think about that well in advance of the lawyer asking them to fill out a form so they can get this thing  done. You'd be like, "No." That's more often than not the conversation versus, working with the planner  who understands and looks for it well in advance of the estate planning piece, what causes or things are  important to you? Is there a charitable request motivation? So by the time you actually get to the stage  where the lawyer is involved, the answer is obviously yes, and it's a priority and a goal of the estate plan,  not just a questions and afterthought. So I think, unfortunately, the problem is in design, we've designed  the charity bequests in a will to be an afterthought as opposed to a priority. 

Denise Fernandes: Absolutely. And I think people often don't include a gift to charity in their will because they want to  leave it to family. And they don't realize that heirs, CRA, and charity as pick two. So they often pick CRA  and their heirs versus charity that they supported their entire life and their heirs. 

Jason Pereira: Yeah. It's almost interesting. It's almost a scarcity mindset. They think that there's just not enough to go  around. And if you don't work through those numbers and show them both scenarios, then that can be  absolutely the case. Perfect example is the example you gave me on the RSP scenario. It's like, "Well,  habits can get wiped out. You can donate all of it and basically pay next to nothing in taxes off it. And if  you've got a large enough estate, then you don't have to really worry about it." That's going to transfer  more tax effectively anyways. So it makes a lot of sense. So after you've gone through and helped them  identify, they're connected with this, what is it they want to do? What is it they're trying to accomplish?  And then what is there going to give? What else is involved in the process? How do you keep them  engaged and involved with the charity? 

Denise Fernandes: So our focus is on stewardship once we talk to them about what they're going to do, because for me, my  top priority is to make sure that the donors sees impact. And so we haven't received their gift yet so we don't have the exact impact, but being able to show the impact that the charity is having gives them a  sense of belonging to the charity, really feeling like they're part of something, which is what we're  seeing donors more engaged with right now. They really want to be part of a community of something,  rather than just, "Here's my $50 check," which we saw from the older generation that was focused on  writing the checks and direct marketing. We're seeing now a lot more on the engagement side. What  can I do along with my investment and my gift to this charity? 

Jason Pereira: Yep. Well, that makes sense. First off, you don't want them changing their will on you. Lets deal with  that. The second piece is, of course, this is almost like in Manziel's hierarchy of needs, now we're talking  self actualization. What are the things that give you purpose in life beyond just shelter and everything  else that's below? So knowing that your involvement or your legacy is going to involve helping people in  XYZ capacity, it's kind of funny, people often criticize millennials for wanting to feel in their job. Yet  meanwhile, here we are talking about how we can help boomers basically feel purpose in their death.  That's essentially it. So the millennials just getting started earlier. 

Denise Fernandes: Yeah. And the one thing is the will used to be called the last will and Testament. And the Testament kind  of shares about your life, about what you wanted in this world, what you've done in this world. And  we've lost that. Now it's just a will, it's a legal document, it's done, you send it to the lawyer and that's it.  And so working with a charity provides the Testament of what's impactful to you. 

Jason Pereira: Yeah. But I also think at the same time, there's a very good reason why the Testament stuff is left out  now because sometimes people put down the reason why they did something, that reason leads to  challenges because it's like, "Whoa, that is racist" or "That is illegal." There's some interesting cases.  There was the one case where one daughter got cut out of the estate and the other daughter got all of it  because it specifically said he was disinheriting her because she married a white boy. Yeah so I was like,  "Whoa, that's an interesting one." And then there was also that case, where believe it or not, I think  someone left their estates to I think it was the KKK of all things. When estates cross into those kinds of  realms or even a simpler one, the racist one is always the worst examples. 

Jason Pereira: Someone once put in her will that her house was only to be sold to a young, white couple. Your draws  dropping as I give you guys the example. So here's the thing, I fully deplore that line of thinking across  the board, in all those three cases. But a lawyer is likely to coach people to not put stuff like that in  there. They're going to be like, if this is the outcome you want, regardless of what I think of it, because  I'm supposed to be impartial to this, then you want a will that's going to give you the highest probability  of delivering on this goal. And if we start putting color as to why in this, specifically color that is highly  challengeable, you're going to get challenged. 

Jason Pereira: So that's the issue. So I think that's largely the reason why is that, the cleaner you keep the will, the less  likely you're opening up areas for conflict. So it is what it is. But I would say I've told clients before, just  tell people why you're doing things in advance. This is why we have family meetings. Hopefully you're  not a racist, anyway, let's just start all together.

Denise Fernandes: Luckily I've had a very different experience from having people discuss their why. And I think luckily it's  from being on the charitable sector. 

Jason Pereira: Well its just a positive why. 

Denise Fernandes: Yeah it's a positive why so I don't get to see those negative why's that maybe the lawyers get to see, but  having given some donors the opportunity to share their why on building an endowment, I once  received this 10 page, beautiful story, full of pictures on really their story, their life, their daughter who  passed. And I was crying in my office. And so I feel like there's something in that as people are figuring  out what do they want to leave behind? It took him almost two years to get that to us when we had  asked. And it was almost cathartic for him to, to go through the process of why he was doing this for his  daughter in the memory of his daughter. 

Jason Pereira: And I think it's, I'll go back to the concept of needing the family meeting. It is one thing to open an  envelope, by the way, the entire myth of everybody goes to the lawyers office and the lawyer reads the  will, that's Hollywood. That doesn't happen. That is meant to shock everybody and create a storyline. In  reality, the executor gets their hands on the will one way or another, reads it and executes it. And that's  basically it. And you get notified what you're entitled to. But the bigger issue is, I always tell people it's  one thing to open up an envelope and see what mom and dad wanted and never have been told, and  then wonder what the heck was going on, or be upset with the fact that it, imagine they leave money to  a child who's not very charitably inclined. And he's looking at and saying, "Why is this charity getting a  giant chunk of my estate?" There are greedy people out there. 

Jason Pereira: And so it's one thing to read it after the fact, it's something else to sit down with your family and maybe  the professionals in your life and have a conversation as to why it is you're doing this and the underlying  deep motivations. And those underlying deep motivations can be incredibly intimately personal just like  the example you gave. And that is a much more highly effective way because now you're not disrespecting a piece of paper without context that your parents left you and it's making you angry,  you're disrespecting their memory. And it's usually important I think. So that's a side track on effective  estate planning. But nevertheless, so basically let's talk about how business owners get started in or  anyone listening gets started in engaging with someone like. What are the typical first steps? How do  you first connect with people who are interested in doing something larger than just cutting the monthly  check or the annual check? 

Denise Fernandes: Yeah. So a lot of people are already donors, so they kind of ask an info line and our customer or donor  service team will send that up to me so that I can have a more in-depth conversation with them. And  because I'm not the financial expert, I lean on those experts, I look to their reason, their why, what they  want to impact in their life or in their future, and then work from there. And then suggest here are some  ways that maybe you haven't thought of, and please discuss it with your advisor because there's really, I am not able to give financial advice, but definitely know that there's other ways of giving that are not  cash that I think they can seek out the proper support for. 

Jason Pereira: Absolutely. And again, for those who want to know more about those strategies, go back to listen to my  conversation with Mark because we went over a lot of things in a very animated conversation as always  with Mark. So anyway Denise, I want to thank you for that. Where can people find you if they're  interested in learning more? 

Denise Fernandes: I'm on LinkedIn, Denise Fernandes. And you can also get to me up at the diabetes, it's  denise.fernandes@diabetes.ca. 

Jason Pereira: Excellent. Thank you very. And thank you for tuning in yet again, to financial planning for Canadian  business owners. As always, if you enjoyed this podcast, please leave a review on iTunes, Stitcher, or  wherever it is you podcasts. And until next time, take care. 

Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm,  catering to high net worth individuals, business owners, and their families. To learn more, go to  woodgate.com. You can subscribe to this podcast on Apple podcasts, Stitcher, Google play, and Spotify,  or find more episodes at jasonpereira.ca. You can even ask Siri, Alexa or Google Home to subscribe for  you.

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