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Determining Which Donation Method Suits You Best

When choosing how to make a large charitable gift, the number of available options can seem overwhelming—especially when each brings its own financial benefits. To simplify matters, here are personal situations you may relate to, along with donation methods for each.

You want to experience the reward of giving now. You may want the satisfaction of helping out during your lifetime and staying informed of the charity’s work. Methods of giving while living include donations made in cash, in investments or through donor-advised funds.

You aim to maximize your donation’s value. You may be ready to make a large donation, but want a way to make your charitable dollars go further. One method is to donate securities, including stocks, bonds and mutual funds, that have appreciated in value, as the tax normally paid on capital gains will not be payable. Another way is to donate a life insurance policy, since the insurance amount the charity receives may be greater than the amount you spent on premiums.

You aim to safeguard your standard of living. You may worry about giving a large gift during your lifetime only to face unexpected situations that make you wish you could have those donated funds back. If you want to give a significant gift without jeopardizing your standard of living, you can leave a bequest upon your passing. Suitable methods include donating through a will, donating life insurance or donating assets in registered plans.

You’re retired and want additional tax-advantaged income. With a charitable gift annuity, retirees give funds that are split into two portions. The charity provides a donation tax receipt for the gift portion and purchases an annuity for the donor. This annuity gives the donor a guaranteed stream of tax-advantaged income for life.

You want to make the most of the tax break. Situations may arise when a donation tax credit helps the most during your lifetime. For example, an individual may sell a vacation property and incur a large capital gain with a burdensome tax liability. By making a charitable donation now, they can use the resulting tax receipt to reduce their tax payable on this year’s return. For tax relief now, you can use cash donations, investment donations, donor-advised funds, life insurance or a charitable gift annuity.

In many cases, individuals recognize that estate assets will trigger a large tax bill, so they arrange for a donation to be made upon their passing. To benefit your estate, you can use your will, registered plans or life insurance.

Retirees with a significant Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) balance have a unique opportunity. These assets are taxed as income and could potentially be the estate’s largest tax liability. However, if you name a charity as the beneficiary of the RRSP or RRIF, the donation tax credit received by the estate can offset the tax payable on the plan’s assets. In many cases, the tax liability is completely offset.

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