Once a client has decided he or she wants to include charitable giving in his or her financial plan, there are many points you need to review with them, from tax considerations to deciding upon an appropriate gift.
For those clients who have always given to charity, your role is to show them how to be tax efficient.
“The tax issue is probably the biggest reason why people actually formally do this,” says Patti Vigna, coordinator with Elite Case Team, Individual Network, Desjardins Financial Security in Toronto.
For those using charitable giving as an estate-planning strategy, you need to demonstrate how they can donate to a favourite cause while still retaining the estate’s value for their beneficiaries.
Here are a few points to consider when helping clients reach their charitable goals.
> Discuss philanthropy with all clients
While philanthropy is often an important tax strategy for your high net-worth clients, remember to speak with all your clients about their philanthropic goals.
Even if the client donates only $1,000 a year, deciding as a family to become involved in a charity can be a rewarding experience, says Marvi Ricker, vice president of philanthropic services with BMO Harris Private Bank.
Says Ricker: “It’s more personal as opposed to just writing a cheque and having the money disappear into the budget of the organization.”
Be sure the client does not have any debt, warns Walter Fenlon, an advisor with Assante Wealth Management Inc. in Kingston, Ont. “If they’re trying to pay off a mortgage they don’t have the disposable income that high-net worth people do.”
> Do the research
Look into the client’s choice of charities for potential frauds and scams.
“Just because somebody has a charitable arm doesn’t mean that they’re a registered charity,” Vigna says. “Check the Canada Revenue Agency website [www.cra-arc.gc.ca/chrts-gvng/menu-eng.htmlto] make sure it is a current and active charity in good standing.”
> Non-cash donations
In some cases a client may wish to give a non-monetary gift, such as artwork, jewelry or land, so it’s important to discuss whether the donation is appropriate for the selected charity.
Donating land is rarely a problem, Vigna says, because land is easy to evaluate and most charities can put it to use. But other non-monetary gifts, such as paintings or jewelry, can pose problems.
While your client may wish to donate a painting to his or her church, it’s “not necessarily a great idea,” Vigna says. The client might donate a $20,000 painting, which the church decides to raffle off for $1,500.
In addition, valuation of art is more difficult to verify, and can be questioned by the CRA.
> Donating shares
Discuss with clients the possibility of giving shares of publicly traded companies from their portfolios to help ease their capital gains taxes.
Charities will receive the face value of the donation, Ricker says, while your client can “bypass any capital gains tax that they would have had if they had cashed those shares.”
> A lasting impact
Make sure your client chooses a charity that has longevity. That’s particularly important when the gift is part of an estate plan.
Vigna gives the example of a local hospital that had the names of donors engraved on gold plaques that form a tree on a wall. That hospital is facing possible closure, resulting in disillusionment on the part of donors.
IE