Putting planned giving on the agenda

(November 19, 2004) It’s not an easy topic to broach, but advisors should take a more active role in talking to clients about planned giving (or charitable donations), says Tim Cestnick, managing director of AIC’s tax and estate planning group.

“Canadians don’t like to talk about these issues,” Cestnick told advisors on Thursday at a session on planned giving sponsored by the Canadian Cancer Society. “But when it comes to advisors, we’re really doing clients a disservice by not talking about planned giving.”

“Many people don’t understand that financial freedom actually means you’re willing to give some money away,” he says.

Still, it’s likely not something he’d introduce in the early stages of a client relationship, suggesting that advisors have to establish a level of trust and familiarity before discussing planned giving, something that could take as long as a year.

And although tax breaks are the most obvious financial benefit of charitable donations, especially with the end of the year approaching, Cestnick feels it should be at the end of the advisor/client discussion on planned giving.

“A lot of advisors make that one mistake by talking about tax savings first. This is not a sales pitch. This is a way to help clients fulfil their own good intentions, that’s the objective.”

“Giving encourages others to give and helps Canadians overcome the belief that hanging on to their money represents financial security,” he says.

“Another reason to give is that it takes the focus off ourselves. And I believe that giving results in more coming back to you. Those who have an attitude of gratitude, as we say, often do give more to charity.”

Cestnick says he puts tax breaks last on the list because it’s not enough of a motivator to encourage people to donate to charity “Let’s face it, for every dollar we give away, we get back 46 cents, but you’re still out of pocket 54 cents. So you have to have the intention to give.”

Having said all that, Cestnick does have suggestions to help clients free up cash for giving, such as donating half of a tax refund from an RRSP contribution. “That would double the amount of charitable contributions in Canada in a given year.”

Another idea involves setting up a prescribed annuity, which allows a client to make a donation without affecting the cash flow required for daily living.

Clients can also give a gift of securities, such as stocks, bonds and mutual funds, since in those situations, the capital gains tax is cut in half to 25%. For example, Cestnick compares a $20,000 cash donation to a $20,000 donation of securities. The net tax saved in the cash donation would end up at $5,750 while the securities donation would save $7,475 in taxes.

“So if there’s a security you’re thinking of selling in the near future, this strategy makes a lot of sense,” he says.

For business owners, Cestnick has a more complex planned giving solution: an insured bequest of private company shares. It’s a multifaceted approach involving life insurance and the creation of a holding company, resulting in a significant donation to charity, greater value to the client’s heirs and no taxes.

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Give a little bit: A charitable giving toolkit for advisors

Tim Cestnick is a mainstage speaker at the upcoming Advisor Forum conferences in Vancouver (Nov. 22-23), Montreal (Dec. 2-3), and Toronto (Dec. 8-9). For more information on when Advisor Forum comes to a city near you, please click here.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(11/19/04)

Doug Watt