How do you want to be remembered? Do you want to leave a legacy that can last for many generations and help charitable causes near and dear to your heart?
Remember, you don’t need to pick between charity or family; instead, redirect your taxes purposefully to charities you are passionate about during your lifetime, or leave a bequest.
Voluntary vs. involuntary philanthropy
Source: Department of Finance Canada, 2016
The above chart is a dollar pie chart of how the Canadian government distributes your taxes.
When I ask clients, is this how you would like to allocate your charitable giving? "No" is the answer 99% of the time.
Take a look at the segments and see if the charity sectors you support are within the pie. Does it have a tiny allocation, or is it even on there?
This should be a wake-up call: if you are not strategic or purposeful with your Estate Planning and charitable intentions, your estate taxes will contribute to what many people call “involuntary philanthropy.” According to the government allocations, this is the default distribution of your taxes and estate.
The Canadian government has created one of the most favourable tax regimes to encourage charitable giving globally. In 2006, the Canadian government announced some donation guideline changes, incentivizing Canadian taxpayers to donate by eliminating capital gains on donations of appreciated securities publicly-traded in non-registered or corporate accounts.
A successful investment plan
Source: CC&L Private Capital
This diagram shows most people’s wealth savings journey over their lifetime. We work hard to accumulate savings initially and hopefully invest them properly to reach a midpoint of assessing when we can retire and how we can use our savings to help fund our retirement lifestyle and spending.
But there are a lot of considerations through this journey. As someone who incorporates charitable giving in their activities, you may give smaller amounts or one-time gifts at the beginning of your life journey and be less consistent in your giving as you grow your family or make large purchases. As we reach the midpoint between saving and spending, your donor perspective may change, and you want to incorporate leaving a legacy in your overall plans. At this stage, the questions change: what are my monthly or yearly living expense numbers, and what can I do beyond my own basic spending needs?
Core vs. excess capital: Determining how much you need and how much you can give
Source: CC&L Private Capital
Over time, you can break down your overall savings and wealth into necessary spending needs, called core capital (light green), and anything you have accumulated above and beyond your core needs, called your excess capital (dark green). Within your excess capital, you have priorities for that spending. The most common areas are children, family, travel pursuits, secondary homes, and charity.
I hope most readers have gone through an exercise like this before, but if you have not, it will be a good use of your time and effort to talk and walk through your situations with a financial professional to come up with your exact numbers. After this exercise, your personal situation will be clearer regarding where and how you can allocate your excess capital and charitable giving.