You can strengthen relationships with your clients by helping them get the most from their charitable gifts.

“Charitable giving is a lot more complicated than the average individual realizes,” says Susan Howe, a regional financial planning consultant for Ontario Southwest with RBC Financial Planning. Even if the client is giving a small, one-time gift, there are many details to consider in order to ensure the client receives the full tax benefit from that donation.

Keep these points in mind when discussing philanthropy with clients:

> Small gifts

Talk with your clients about how they would like to give donations during the year.

For a small, annual gift, a client can simply write a cheque for a lump sum, says Howe. Or the client can set up monthly withdrawals from his or her bank account. A third option for the client is to donate appreciated securities to a charity.

> Tax deductions and small gifts

There are a few tax issues to point out to clients who want to make an annual donation.

There is a minimal tax credit available for gifts totaling less than $200, Howe says. It may, therefore, be better for clients to accumulate tax receipts of small gifts over five years so that they report more than $200 on their tax return.

As well, if the client is married or has a common-law partner, she adds, the couple’s total donations can be claimed on the tax return of the spouse who has a higher income, thereby lowering his or her taxes.

Also, Howe says, it’s important for clients to be aware of the limit on donations they can claim on their tax returns. Clients may claim up to 75% of their net income for the year to receive a tax credit.

> Extraordinary gifts

Clients who expect to make a larger charitable donation must be prepared to do significant planning.

“[Large donations] require a bit more thought and a higher level of commitment,” says Malcolm Burrows, head of philanthropic advisory services with Scotia Private Client Group in Toronto. “They have greater implications in a person’s life.”

“Extraordinary gifts,” as Burrows refers to them, generally come from estate plans or through major financial events such as the sale of a business. They generally involve many different professionals, such as tax experts, accountants, lawyers and possibly insurance experts. You, as the financial advisor, must be able to co-ordinate and work with everyone involved in the planning process.

These types of large gifts usually involve donor-advised funds, private foundations or trusts.

> Limitations on estate donations

Just as with a small, annual donations, there is a limit to the amount of donations an estate can claim after a client’s death.

The full gift provided to a charity through an estate plan is deductable up to 100% of the net income on the deceased’s terminal tax return, Howe says. If the donation exceeds that amount, the estate can carry the donation back to the tax return of the year before the client’s death and it would again be deductable up to 100% of the person’s net income.

This is the second instalment in a two-part series on charitable giving.