Donation Templates

What are the Different Types of Donations?

Planned giving is above all a gesture that comes from the heart. However, it is important to be informed about the tax regulations which will be applied. The more structured your planned gift is, the greater its impact. Some of the most common types of donations are:

• Charitable Bequests

Once you secure the well-being of your family and friends, you may choose to include in your will a significant donation to one or many charitable organizations.  If important changes occur in your life, you can always modify your will according to your situation.

A charitable bequest continues to be one of the simplest and most accessible means of planning a gift that youmight send through a donation letter. Providing first for the well-being of one’s family and loved ones, you can also bequeath an amount or percentage of your assets to one or more charitable organizations of your choice. There are indeed many ways to do so:

• Specific bequest (a fixed amount or identifiable asset);

Residual bequest (all or a percentage of the remainder of the estate after the payment of debts and specific bequests);
Designating a charity as contingent beneficiary in the event of death of the primary beneficiary;

• Gifts of Life Insurance

There are various ways of making a gift of life insurance. The type of gift will depend on your client’s objectives, age and family situation.

1. Surrendering an existing policy. If you no longer need the protection of your life insurance policy, you may surrender it to a charitable organization and continue to pay any premiums still owing, if applicable. Note: this case constitutes a transfer and not a conversion.
2. Purchasing a new policy. If you wish to make an important donation but your means are modest, you can purchase a life insurance policy and subsequently name a charitable organization as beneficiary. In this case, it is always preferable to spread out the payment of the premiums over a limited period of time, for example three, five, seven or ten years. For each premium paid, you will receive a donation receipt for the amount of that particular premium.

• Gifts of Real Estate

You can donate a family residence to a charitable organization while continuing to use it until the end of your life. You will receive an income tax receipt of the commuted value of the asset at the time of the donation. At the time of death, the charitable organization will obtain the use of this residence. If real estate assets other than the primary residence are donated, 50% of the capital gain is taxable.

• Gifts of Listed Securities (eligible shares and other securities)

The gift of publicly listed securities, bonds, mutual fund units or other similar securities is one of the most fiscally advantageous ways to make a substantial donation to a charitable organization because the donor will avoid paying tax on the capital gain. The gift of shares or other securities will give rise to a tax credit. It is more advantageous to transfer the securities directly rather than to donate the proceeds collected from selling the securities. This type of donation is advisable to those who wish to make a substantial donation without encroaching on their liquid assets, or to those who own shares or other securities which have significantly increased in value since their acquisition.

• Charitable Annuities

A charitable gift annuity consists of a donation of money or other assets to a charitable organization in exchange for guaranteed earnings for life or for a determined period of time. The organization can issue the annuity itself and assume the risk associated with it. In order to avoid assuming the risk, it can also buy this annuity from a life insurance company and name the donor as the primary beneficiary of the annuity. The residual amount is paid to the organization, as a secondary beneficiary, when the grantee of the annuity passes away.

• Charitable Remainder Trusts

Creating a charitable remainder trust allows you to make a substantial donation, while still receiving the income generated from the asset you are transferring. The trust manages the allocated capital until the time of death; at that time the capital will be transferred to the charitable organization chosen. Setting up such a trust entitles you to a donation receipt of the commuted value of the transferred assets.

• Endowment Funds

Endowment funds, when used as a type of planned gift, consist of transferring an important sum to a charitable organization and designating the particular cause which will benefit from the income generated by the capital transferred as a donation. The terms and conditions pertaining to such a fund are documented in a contract between the organization and the donor. In order to comply with the standards of the Canadian Revenue Agency, the capital will remain intact for life or for a minimum of ten years; the organization is subject to disbursement quotas, which are 3.5%. The charitable organization that you will have selected will manage the capital and will present you with an annual report, providing all relevant financial information. You can choose the name of the fund in order to perpetuate the memory of a loved one.