3 Ways To Fulfill Your Philanthropic Ambitions In Addition To Volunteering
When it comes to giving back to the community, many of us have philanthropic ambitions, but are concerned that we cannot afford to donate. The good news is that if you want to make the world a better place, you can still contribute without cutting a big check. This article walks you through 3 ways to finally fulfill your philanthropic ambitions, and it’s not just about volunteering.
1. Give Back Your Time And Skills
Volunteering is a valuable way to give back—your time, skills, experience, and connections are what you have accumulated and can be just as valuable as, if not more valuable than, cash donations. Many charities and non-profits have specialized needs but cannot afford a dedicated or experienced staff.
2. Build Philanthropy Into Your Long-Term Financial Plan
While making a direct cash contribution to your charity or non-profit of choice may be the simplest route to donating, the reality is that not everyone gives back this way because they feel that they can’t afford to routinely do so. Depending on your personal and financial situation, one or more of the options below may suit your long-term financial plans.
a. Gift of Retirement Assets:
You may choose to look to your investment portfolio as a source of capital for your philanthropic ambitions. In this case, you might consider donating securities in-kind, as opposed to liquidating them and donating cash, because in many cases securities donated will see their capital gains inclusion rate drop to zero, entirely wiping out the taxable capital gain while still providing you with the charitable donation tax credits that work to reduce your taxable income. If securities are sold first then donated however, this mechanism does not apply and while you would benefit from the tax credit you would still be subject to the 50% taxable inclusion rate on capital gains. It is also noteworthy that these tax credits do not have to be used for the tax year during which you make the donation, but rather can be carried forward up to 5 years. Taking this approach to philanthropy can have substantial benefits, along with potential pitfalls, so it is recommended that you consult with your financial advisor to carefully assess your retirement plan and devise an appropriate strategy.
b. Gift of Life Insurance:
Life insurance can be used as a powerful vehicle for having a philanthropic impact. You might choose to name a charity as the beneficiary of the policy, in which case, while you would not benefit from tax credits while making premium payments, your future estate would be able to claim the charitable donation tax credit on the value of the death benefit and reduce its tax bill in the year of death, the year prior to death, or carried forward for up to five years. Alternatively, if you were to take out a new policy or transfer a policy to a charity, you would receive tax credits from paying the premiums but your estate would not receive any tax benefits from the eventual payout. The latter strategy may have taxable implications that arise as part of the transfer so it is advised that you consult with a tax professional if you are contemplating this.
c. Your Will:
You can also choose to make a donation to a charity through a bequest in your will. In this case, your estate would benefit from the charitable donation tax credit, with up to 100% of your net income claimed as donations in the year of death or the preceding year. You may also choose to name a beneficiary on registered accounts (outside the will) such as your RRSP or RRIF, such that the transfer will be treated as though it was made immediately prior to death so long as certain conditions are met, potentially minimizing tax liabilities that would otherwise arise from deemed disposition.
3. Build An Investment Portfolio To Give Back
You can build an investment portfolio to help you generate a lifetime of retirement income or independent cash flow to fund your philanthropic ambitions by investing in dividend paying or income producing investments. An important component of such a portfolio is the monthly income from these investments that you can receive in cash. For this to be a successful approach, it is vital that your money is invested safely so that both the value of your portfolio and cash flow are protected as much as possible should the stock market decline in value. Once your portfolio has been built, you can allocate a portion or all of the independent stream of cash flow for charitable giving.
Planning for giving back to the community can also be important for your own increased happiness. It helps to think about your giving as a planned expense, like all other living expenses, to ensure that you can fulfill your philanthropic ambitions.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.