Workshop offers advice for estate planning and legacy giving

BY LEIGH ANNE WILLIAMS

Wondering about the best way to leave a charitable gift in your will and maximize the income tax benefit from it? An online workshop on the basics of leaving legacy gifts, hosted by Cornerstone Housing for Women and Christ Church Bells Corners, provided a lot of answers and practical estate planning advice from tax experts.

Wills and power of attorney Ontario lawyer Dennis Molnar began the session by underlining the importance of wills and power of attorney. A will gives the individual peace of mind knowing exactly who will get what from the estate and when and that clarity reduces stress on loved ones left to administer the estate, he said.

He explained that if someone dies without a will, Ontario succession law determines who benefits from the estate. A spouse gets the first $350,000, after all debts are paid, the remainder is split equally among children, but this still leaves room for a lot of conflict within a family, he said. “There can be a lot of litigation and bad emotions involved. It can be really expensive for the estate, and it has the effect of potentially lowering everybody’s entitlement,” he said. A will also allows the individual to designate a gift to a charity such as Cornerstone, he added.

Molnar also outlined the importance of designating power of attorney —legal documents that give someone else the right to make decisions for you while you are alive— for both personal care and property. In Ontario, these documents must be created when the individual is still mentally capable or competent.

“The reason you want to make these documents while you’re able to is to ensure that there’s no lapse or inability to make decisions on your behalf when you need them to be made,” Molnar explained. “If you are, for example, in a coma or something catastrophic has happened, you haven’t died, but you do need financial decisions made, bills to be paid.”

Regarding the power of attorney for personal care, Molnar added that if you don’t have a power of attorney in Ontario, someone can apply to become a court appointed guardian for property or guardian for personal health care decisions, but it’s not a guaranteed appointment.

“It’s actually a court case. It can be contested.” So, Molinar advised,

”If you want to make sure that somebody you trust, that you love, that you know is going to make the same decisions that you wanted to make,” is in charge, create a power of attorney.

Gifts of appreciated stock

Alan MacDonald, an investment advisor and chartered financial analyst, explained that he often advises his clients who want to leave a donation for a charity to gift shares of an investment instead of cash. “Any capital gains that are associated with that investment aren’t taxable. So, if the $10,000 [investment] that they want to gift [was] bought originally for $2,000, they get full credit for the $10,000 charitable contribution or a full tax deduction. And the $8,000 of capital gain isn’t taxable. So that represents a tax savings of an additional $2,000 in that case for someone who’s in the top tax bracket.” He noted that if people gift cash to a charity, the estate ends up paying tax on any appreciated securities because they are considered sold at the time of the person’s death unless they were jointly owned by a spouse.

Designating a charity as a beneficiary of a RRIF

Warren Trickey, a retired tax partner with McCay Duff LLP, who oversaw the tax practice for 30 years, pointed out that if you leave specific gifts to charity in your will, the only way you can change that is changing your will. A more flexible option is to designate a charity as a direct beneficiary of your Registered Retirement Income Fund (RIFF). That he said is easier and can be changed any time.

“Direct beneficiary designation means that the funds will go directly to the charity and will bypass your will and not be part of your estate and not subject to the 1.5% estate administration tax in Ontario,” he said, adding that the funds can be paid out quickly to the designated charity instead of waiting for the estate to be settled.

Trickey offered an example of how making a charitable donation could increase the total after tax inheritance. “If you have $100,000 in your RIFF and you pass away, and you’re subject to 53.5%, then you’re going to lose $53,500 of that. If you designate half of it to a charity, then almost half of that tax will be deferred, and therefore, the amount that’s left in your residue of your estate could be higher.”

Life insurance

Nicholas Alldridge, a certified financial planner with Sun Life, described two ways life insurance could be used as a charitable giving strategy. If you make a charity the owner of the policy (or transfer an existing policy into the name of the charity), the premiums you pay for the policy create donation tax credits that you can use to offset your income tax for that year. An alternative way is to keep the policy in your name, continue paying for it, but at the time of your death, your estate receives the tax credits, he explained. “The question boils down to the need to offset the tax now, or do you want to offset it at death?”

Impact

Archdeacon Kathryn Otley, Rector at Christ Church Bells Corners, told listeners about the way a parishioner of modest means made a huge difference for an affordable housing project at the church, which is now nearing completion.

“John Hollyer…. lived in the trailer park very close to the church… The way that we met him was someone was out gardening at the front of the church and John said, ‘Can I lend a hand?’” Otley said that question typified the way he lived. He helped at the church in many ways and tried to help people if he saw them on the street. He believed in giving a hand up rather than a hand-out, she said. “When he died, we discovered he had left us his entire estate — his trailer — and when the trailer was sold, it realized close to $80,000.”

His gift paid for a feasibility study for the housing project and more. Now nearing completion, Hollyer House will include 35 units, providing housing for about 70 people, but thousands more will benefit from the community hub on the ground floor, which will house a resource centre and community food cupboard.

“It’s just a wonderful example of the difference that legacy giving can make,” said Otley.