This month’s blog post was written by Megan Duncan, Assistant Vice President, Cidel Trust Company.

Many Canadians are increasing their charitable giving initiatives as a way to give back to causes that are close to their heart and to create a legacy of philanthropic giving for generations to come. A great amount of wealth will be passed down from one generation to the next in the coming decades, and many families are looking to use this as an opportunity to pass down their philanthropic values, impart virtues and perpetuate the tradition of generosity. Charitable giving can be facilitated through three primary means – direct donations, private foundations and donor advised funds¹.

Donating directly to charities is a simple and easy way for individuals and families to be philanthropic to qualified donees of their choosing. Giving this way is largely appropriate when donations are made as desired and are not part of a larger wealth planning initiative. Similar to private foundations and donor advised funds, individuals can donate either cash or securities and receive a tax receipt at the time of the donation.

Private foundations are registered directly with the Canada Revenue Agency (CRA) where the donor is responsible for all activities of the foundation (i.e. issuing tax receipts, screening charities to ensure they are a qualified done as per CRA, remitting grants), including the fiduciary duty regarding management of the funds. One must be aware of the legal, administrative, and ongoing costs and duties of administering a foundation, such as tax filings and reporting requirements. Foundations are public entities and are subject to public disclosure of financial information, board members, trustees, and grants made. As such, private foundations lack anonymity.

Conversely, a primary advantage of a private foundation is that it allows donors to have control over when and where grants are made, subject to the applicable CRA rules and regulations (i.e. each year there is a stipulated minimum donation amount that must be made). Further, the foundation itself may be able to operate charitable programs itself, whereas donor advised funds cannot.

As one can imagine, the administrative responsibilities and regulatory requirements for operating a private foundation are vast and, for those without the necessary time and expertise, can be quite a burden to manage.

A Donor Advised Fund (DAF), on the other hand, is a flexible charitable vehicle registered with the CRA that allows you to grow your charitable assets tax-free and support charities of your choosing without the administrative responsibilities and costs of establishing your own private foundation.  This means more of your effort can go directly toward the causes you care deeply about. The donor receives an immediate donation receipt in the year assets are transferred to the DAF, and can recommend grants from the fund to their preferred organizations and causes over time.

DAFs can be set up quickly and easily, with the Foundation handling the administrative tasks, reporting obligations, and remittance of grants on behalf of the donor. For many individuals and families, not having to undertake such responsibilities is a key advantage to using a DAF. DAFs can be named by the donor and therefore can be as transparent or anonymous as one would like. For families looking to make an impact anonymously, DAFs are the ideal tool.

In the case of private foundations and donor advised funds, the donation of assets into the charitable vehicle results in a tax deduction and the assets can be invested and grow over time in a tax-free manner, furthering the eventual asset base available for donations. In addition to providing much needed resources to support a great cause, this tax relief may be further enhanced if you donate public securities with accrued capital gains.  By doing so, you are issued a charitable tax receipt for the fair market value of the securities but are not taxed on the gain realized at the time of making the donation.  Donating securities in-kind is more efficient to both you and the charity as you receive a larger tax credit and are able to give more to the charity you care about.

Considering the donor’s circumstances and philanthropic objectives, each charitable giving option can provide distinct advantages. Initiating a dialogue between the financial advisor and the client to assess the merits and drawbacks of each giving option marks an important initial stride toward building a lasting legacy of charitable contributions.

¹ Cidel is pleased to offer both Private Foundations and Donor Advised Funds. Please contact Cidel if you would like to learn more about how we can help you achieve your charitable objectives.

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