A philanthropy primer: high-impact, tax-smart giving

This weekend, as families gather for a socially-distanced (even virtual?) Thanksgiving dinner, the things we once took for granted, we now take with gratitude.

Some of our client families use this traditional weekend celebration to discuss their charitable giving plans – putting gratitude into action.

So, it is timely that we hosted this online panel discussion on the topic of philanthropy: Smarter Giving—A How-to Webinar on Philanthropy.

Moderated by Newport portfolio manager, Jordan Schwann, the webinar featured a panel discussion with philanthropic experts: Denise Castonguay, CEO of Canada Gives, a charity that helps individuals and families build high-impact foundations; Terry Jackson, a retired financial executive and fund holder at the Oakville Community Foundation; and Vincent Didkovsky, a CPA, CA and Director of Wealth Management at Newport.

Properly structured, charitable giving can be a powerful financial tool that is part of smart wealth planning. The path to smarter giving also means making the leap from cheque-writer to strategic donor. The end goal is to create a high-impact, tax-smart giving plan that builds a lasting legacy for you and your family.

Below are some of the points we explored in the panel discussion:

Put strategy behind your philanthropy

The challenge for many high-net-worth individuals is that while they want to give to their favourite causes, they don’t always know how to start or how to maximize the impact of their gifts.

Some stick to writing cheques and giving ad hoc donations, which are always appreciated, but don’t necessarily have the same strategic or long-term benefit. Others build sizeable gifts into their estate plan, but aren’t around to see their money make a difference – or to receive the tax credit, which can sometimes be larger than the tax owing on the estate, according to Didkovsky.

As a dedicated philanthropist of more than 40 years, Jackson’s advice is to align your giving with your values and charitable goals—and start giving back during your living years.

“A wise man once told me, ‘It’s better to give with a warm hand than a cold hand,’” he told our webinar audience, adding that he and his wife became involved in charitable work when their eldest daughter was diagnosed with juvenile diabetes. They have been generous givers to the Juvenile Diabetes Research Foundation for over four decades.

“It’s the idea that the warm hand can watch exactly how your money is being put to work and have some input as to how it can be used properly by the charities that you choose.”

Mission statements make a difference

Successful philanthropists use a clear mission statement to define the purpose of their charitable work, while building a framework to guide their giving, according to Castonguay.

“Start by asking yourself, ‘What problem am I trying to solve?’ Is there a social issue that means something to me on a personal level?”

Going through that process will help you determine the charities you want to support, as well as those you may not.

Castonguay then outlined the more structured giving options for philanthropists beyond one-off donations: namely, private foundations or donor advised funds (DAFs), also known as foundation accounts.

She noted that while private foundations offer greater control, they incur greater costs, time commitments, and liability with the Canada Revenue Agency.

On the other hand, a DAF administered by a community foundation or Canada Gives provides anonymity to philanthropists, incurs no tax or legal liability, and alleviates the administrative burden. Like a private foundation, a DAF also affords more time to select charities and create a long-term giving strategy. And it offers the option of investing/growing funds within the foundation over time to maximize a donation’s value.

How you give affects the bottom line – yours and the charities’

Didkovsky walked us through various donation scenarios—one in which a fictional family sold their investment portfolio and donated the after-tax proceeds, and another where they donated their portfolio directly (i.e. in kind) to a charity.

The latter was more than twice as efficient from a tax perspective. “By changing the structure and donating the portfolio to the charity directly, the family was able to double the impact of their donation,” he explained.

The contrast highlighted the benefits of working with your portfolio manager and accountant to ensure your giving and tax plans are aligned.

Philanthropy can be a way to bring your family together

Giving back is a great way to create new bonds with loved ones and to share the joy of philanthropy across generations—especially around the holidays.

As many families use occasions such as Thanksgiving to set donation plans for the coming year, others take it a step further.

Case in point: Jackson and his wife recently opened small accounts for each of their 16 children and grandchildren. The idea was to reinforce the importance of giving back across their family, while enhancing their own philanthropic legacy.

“We wanted to help them get involved with what’s going on in their community, but also to think about others on an annual basis and have an opportunity to help whatever charities they think are important at the time,” he explained.

Evaluate and measure the results of your giving

As Castonguay noted, today’s philanthropists are more engaged than ever in their charitable work. Many want to quantify the impact of their donations to better shape their giving strategy. This is particularly true of entrepreneurs and business people who are used to measuring results.

Her advice is to work with your preferred charities, review their quarterly or annual impact reports and analyze the results. Are they moving the needle and creating meaningful change? Does their work still align with your values and goals as a philanthropist?

Reporting and measuring results is an ideal way to build confidence and know that your money is being put to good work.

We hope you enjoy the webinar. If you have questions about working charitable giving into your wealth-management plan, feel free to get in touch.