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VIDEO AT BOTTOM OF ARTICLE
When you find a nonprofit organization that resonates with your values, your first instinct may be to write a check. While this method is straightforward and effective, there are several other impactful ways to contribute to causes close to your heart. Below, we’ll explore three distinct approaches to giving, including two that take effect after your lifetime and one you can implement while you’re still alive. |
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Using Life Insurance for Charitable Giving
Life insurance is often a necessity during the earlier stages of life, especially when your income supports dependents. However, as financial obligations decrease over time, you may find that you no longer need the same level of coverage. Instead of reducing your coverage or canceling your policy, consider using it as a charitable tool.
How it works: Name a nonprofit organization as a beneficiary of your life insurance policy, either partially or in full. Upon your passing, the organization receives the payout, and your estate is issued a tax receipt for the amount donated. This tax receipt can offset taxable income in your final year, benefiting your estate.
Options to consider: Speak with an insurance advisor to explore whether your term insurance can be converted to permanent coverage or if maintaining your existing policy is feasible for charitable giving.
Bequests in Your Will
Another way to support nonprofits after your lifetime is by including a bequest in your will.
How it works: Amend your will or add a codicil specifying the nonprofit organization you’d like to support and the fixed dollar amount you wish to donate. Financial advisors often recommend fixed amounts instead of percentages to provide clarity and ensure the intended impact.
Tax benefits: Upon settling your estate, the nonprofit will issue a tax receipt for the donation. This receipt can offset taxable income in your estate’s final year, just like with life insurance.
Gifting Securities In Kind
For those looking to make a difference now, gifting securities in kind is an excellent option, particularly if you have non-registered investments with significant capital gains.
The challenge with selling investments: When you sell investments, such as stocks, bonds, or mutual funds, you’re required to pay tax on 50% of the capital gains. For example, if you purchased an investment for $100,000 and its value increased to $175,000, you would face taxes on $37,500 ($75,000 x 50%) of capital gains.
How gifting securities works: Instead of selling the investments and donating the net proceeds, you can transfer the securities directly to a nonprofit organization. By doing so:
Benefits to the nonprofit: As tax-exempt entities, nonprofits can either sell the securities immediately to fund their operations or hold onto them to generate ongoing income through dividends or interest. Either way, your contribution makes a significant impact.
Life insurance is often a necessity during the earlier stages of life, especially when your income supports dependents. However, as financial obligations decrease over time, you may find that you no longer need the same level of coverage. Instead of reducing your coverage or canceling your policy, consider using it as a charitable tool.
How it works: Name a nonprofit organization as a beneficiary of your life insurance policy, either partially or in full. Upon your passing, the organization receives the payout, and your estate is issued a tax receipt for the amount donated. This tax receipt can offset taxable income in your final year, benefiting your estate.
Options to consider: Speak with an insurance advisor to explore whether your term insurance can be converted to permanent coverage or if maintaining your existing policy is feasible for charitable giving.
Bequests in Your Will
Another way to support nonprofits after your lifetime is by including a bequest in your will.
How it works: Amend your will or add a codicil specifying the nonprofit organization you’d like to support and the fixed dollar amount you wish to donate. Financial advisors often recommend fixed amounts instead of percentages to provide clarity and ensure the intended impact.
Tax benefits: Upon settling your estate, the nonprofit will issue a tax receipt for the donation. This receipt can offset taxable income in your estate’s final year, just like with life insurance.
Gifting Securities In Kind
For those looking to make a difference now, gifting securities in kind is an excellent option, particularly if you have non-registered investments with significant capital gains.
The challenge with selling investments: When you sell investments, such as stocks, bonds, or mutual funds, you’re required to pay tax on 50% of the capital gains. For example, if you purchased an investment for $100,000 and its value increased to $175,000, you would face taxes on $37,500 ($75,000 x 50%) of capital gains.
How gifting securities works: Instead of selling the investments and donating the net proceeds, you can transfer the securities directly to a nonprofit organization. By doing so:
- You’re not required to declare any capital gains.
- You receive a tax receipt for the full market value of the securities at the time of the transfer.
Benefits to the nonprofit: As tax-exempt entities, nonprofits can either sell the securities immediately to fund their operations or hold onto them to generate ongoing income through dividends or interest. Either way, your contribution makes a significant impact.
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A Win-Win Approach to Giving
These strategies not only maximize the financial impact of your contributions but also provide meaningful tax benefits. Whether you choose to support a nonprofit during your lifetime or include them in your estate plan, it’s important to consult with a financial advisor or accountant to ensure the best approach for your unique situation. If you have questions about charitable giving, feel free to reach out to your local financial advisor or contact Lighthouse Money Management in Goderich for personalized advice. Supporting the causes you care about can be both rewarding and impactful, leaving a lasting legacy of generosity. |
Figures & info accurate as of 2023.
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