The benefits of philanthropy for high-net-worth investors
Giving back: the benefits of philanthropy for high-net-worth investors
There’s no shortage of worthy causes in search of financial aid, especially in times of crisis, and for high-net-worth individuals looking to pursue their altruistic passions and give back, choosing which to support and how best to do so can be a difficult task.
Creating meaningful change could be more than writing a cheque and hoping your donation may help the right people. For many high-net-worth Canadians, it can also mean finding a better way to use their wealth to transform lives and make the world a better place.
At Manulife Private Wealth, we believe that smart philanthropy, built on enduring partnerships, is the most effective way to deliver hope to those who need it most. In this article, we take a look at some of the benefits of charitable giving and the most effective ways of going about it.
Benefits of charitable giving
Helping others brings its own rewards: A study by the University of Oregon found that charitable giving can create a surge of dopamine and endorphins that promote feelings of happiness and fulfilment.1 Charitable giving can also help build a philanthropic family legacy and, if set up correctly, can do so in a tax-efficient manner. The federal personal charitable donations tax credit rate is currently 15% on the first $200 and 29% on the remaining $200, and depending on which province you call home, there could be an additional amount raising the overall tax credit toward 50% of the donation.
Ways of giving
Navigating the options of charitable giving can be complex, with objective advice often difficult to come by. A 2014 research study suggests that while some 91% of Canadian high-net-worth households donate to charity, just 13% consult with their financial professional on the subject.2 However, having a financial professional during your philanthropic conversations can better help you and your family support the causes most important to you in a more effective and impactful manner.
While making a direct, one-off donation may benefit the recipient charity, the benefactor has no say in how that donation is used. For individuals looking to make longer-term contributions with greater control over how those funds are distributed and used, there are several other options available that could prove more suitable. We’ll look at them here in closer detail.
1 Estate planning
Making a charitable gift in a will allows you to support your chosen causes long after you’re gone. Planning in advance allows you to bequeath a set sum, a percentage, a specific asset, or the residual amount of your estate. Donating to charity in your will also reduces the tax owed by your estate. The exact value of the nonrefundable tax credits for your charitable donation is calculated based on your income in the year the donation is claimed. Your estate will receive a donation receipt for the amount of your gift, reducing—or even eliminating—final taxes.
2 Private foundations
Private foundations (PFs) are flexible vehicles, often created to promote family philanthropy through the support of charities chosen by the founders. As registered charities, PFs can issue donation receipts when a gift is made to the foundation, even though the foundation may hold onto the gift for several years (subject to certain rules). Furthermore, since PFs are exempt from tax, the income earned on the donation grows tax free, allowing the foundation to make large contributions to other charities. PFs have become more popular over the last decade as a result of changes to the Income Tax Act, although it’s worth bearing in mind that staffing and administration requirements can make them costly and time consuming to operate.
3 Donor-advised funds
Donor-advised funds (DAFs) provide many of the same benefits as PFs without the operating costs and are the most popular choice for high-net-worth individuals wishing to make long-term contributions.
As is the case with PFs, DAFs allow benefactors to make charitable contributions without having to decide which charities will ultimately benefit from their gift immediately, allowing the funds to continue growing tax free. The donor receives an immediate donation receipt but can take time developing a charitable giving plan for disbursing the funds to individual charities.
Working with Manulife Private Wealth
To make a meaningful difference, it helps to have a ready infrastructure and support system. That’s where we can help. Through Manulife Private Wealth, our clients can access a specialized donor-advised charitable giving program to create meaningful change through a simplified experience.
Working together with your dedicated investment counsellor, we can give donors the ability to fund their preferred charities’ immediate operational needs while creating a long-term funding base to support annual charitable programs. Through smart philanthropy, we manage the complexities, while high-net-worth individuals can support their favorite charities, receive potential tax benefits, and leave a lasting philanthropic legacy.
Important disclosures
1 University of Oregon, August 15, 2016. 2 “The Philanthropic Conversation”, BMO Harris Private Banking, GIV3 Foundation, Canadian Association of Gift Planners, Philanthropic Foundations Canada, November 5, 2014.
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