Create your legacy

SAM SHAMASH

In making his landmark $31 billion US gift to the Bill and Melinda Gates Foundation, legendary investor Warren Buffett acknowledged that there's much more to philanthropy than simply writing cheques. The world's greatest investor - someone who knows a thing or two about money – chose someone else to help him distribute his vast wealth to charity.

While you may not have Buffett's megawealth, you do face the same basic choice when deciding how to create your own charitable legacy. Do you entrust others with the responsibility for managing your legacy? Or do you take a more active role by establishing your own private foundation?

In fact, you're faced with a number of different choices when deciding how to give to charity. There are nearly 80,000 registered charities in Canada alone. There are also many different ways to give. These include the following.

The most common way people give to charity, of course, is by simply donating cash or other assets. When you make an eligible gift to a qualified charitable organization, you receive a donation receipt you can claim on your income tax return. This type of donation makes most sense when you're making a one-time gift and want to provide an immediate benefit to the charity, while receiving some tax relief.

Many people also make bequests – they designate charities as beneficiaries of their estate in their will. You can choose to leave an absolute dollar amount, a certain percentage of your estate or a residual amount that goes to a specific charity after your other beneficiaries have received their bequests. A bequest makes sense when you want to make a one-time gift to your chosen charity at a future date, while providing a tax credit for your estate.

Charitable remainder trusts may be suitable if you are considering a significant gift – at least $200,000 to justify the trust's various expenses – and would prefer an immediate tax credit versus one for your estate. With this alternative, you contribute cash or other assets during your lifetime to an irrevocable living trust. You receive income generated by assets within the trust. On your passing, the initial capital passes directly to the charity named as the beneficiary, bypassing probate.

Charitable gift annuities enable you to give a lump sum to a charity and receive guaranteed periodic income in return, usually monthly, making it an attractive option for retirees. The older you are when you establish the annuity, the higher your income. The charity generally retains 25-30 per cent of the donation and uses the balance to purchase the annuity from an insurance company. Charitable gift annuities are irrevocable, so you should be willing to give up control of any money you commit to it.

Many institutions operate endowment funds that provide scholarships, fellowships, bursaries and research grants. In some cases, wealthy individuals or families provide very large donations to fund, for example, a professorship. Endowment funds invest your gift and use only the income stream to fund ongoing projects.

A private foundation is a nonprofit organization usually funded by a single source or a small group. The foundation awards grants to support specific work by others or makes contributions to other registered charities.

While offering the most control, a private foundation involves a significant time commitment and ongoing administrative expenses. This type of foundation is best suited to individuals with at least several hundreds of thousands of dollars to commit to philanthropic endeavors.

A public foundation is a nonprofit organization funded by public donations. There are several types, including community foundations that support charities in a specific geographic area and special-purpose foundations that support particular causes. You can set up your own charitable gift fund with a public foundation, and decide which charities benefit. Or, you can donate to the foundation's general fund, and allow the foundation to decide which charities to support.

Sam Shamash is a financial adviser at RBC Dominion Securities.

^TOP