Ways to make gifts to the church
1. Wills
As described above, the donor will receive a tax credit offsetting any
capital gains tax, making this the most popular method of gifting to the
church.
Sadly, nearly half the population do not have a will, and when they die
without one this often causes sheer misery for their surviving family members, vainly attempting to sort out the mess often in an acrimonious environment. The estate administrator appointed by the court will not allocate any part of the estate to the Church. It is in the Church's interest to encourage the use of wills.
2. UCCAN Annuities
Gift annuities are the most popular way of sheltering your income in your retirement from tax while providing the church with a future gift. The United Church pioneered the concert of charitable annuities. To create an annuity, you must be 60 years of age or older. You may create an annuity with your spouse or sibling which will continue to pay the survivor an annual income.
Here's how it works. A benefactor purchases an annuity from UCCAN. The
yield to the annuitant is based on current interest rates and is usually provided semi-annually. Anywhere from 55% to 100% of this income is tax-free, depending on your age. Upon the death of the annuitant, the residue of the annuity is delivered to the area of church work designated by the annuitant.
Depending on your age, the income you receive on gift annuities is
competitive with bank rates and government savings bonds. Part of the original principal may be eligible for an up-front tax receipt. A charitable receipt can only be issued for an amount equal to the amount of the donation minus the sum of the annuity payments which are expected to be received during annuitant's life expectancy. That is, if the annuitant is expected to receive in total over the years less money than he donated, the difference is a gift which is receiptable by the charity.
Note: This method places the church in the role of the annuity payor.
Certainly the United Church is an exception; but for many other charities it is possible the annuitant donor may outlive the charity. If the charity ceases to exist, the annuity payments would stop. From the donor's perspective it is a much more secure arrangement if the charity is compelled to use whatever portion of the donation is necessary to purchase an annuity from a life insurance company which pays the periodic income which the charity and the donor agree on. The charity then absolutely assigns the payments to the donor. The balance of the donation not required to purchase the annuity from the life insurance company is then immediately accessible by the charity for its work.
3. Gifts of Life Assurance
A gift of life insurance allows a benefactor to arrange a future gift for the church at low cost to the benefactor. This can be arranged through your insurance agent. For premiums to be tax-creditable, the policy must be irrevocably assigned to the church.
The life insurance policy is owned by the donor. The premiums are paid by
the donor. The donor's estate is designated beneficiary. The donor's
will is then amended by a lawyer to instruct the executor of the estate to donate the life insurance proceeds received from the policy specifically described in the will, to the church specifically listed in the will. The donor has control of the policy during his lifetime, and can access the cash value, cancel the policy or change the beneficiary at any time. No charitable receipt are generated during the lifetime of the donor. At the time of death, the tax-free life insurance proceeds would be paid to the estate, then be used to carry out the instructed donation. The charity would then issue a charitable receipt to the executor who would in accordance with the Income Tax Act be able to apply the receipt towards the calculation of a charitable tax credit in the deceased's final Income Tax Return.
Life insurance policies, RRSPs and RRIFs should never have a charity as
their designated beneficiary, since the charity will be prohibited from issuing a charitable receipt. For a charitable receipt to be issued following death, the donation must be made by the executor or administrator of the estate in accordance with a specific bequest direction in the deceased's will. The executor or administrator cannot elect to make a donation without such a bequest appearing in the will.
The Department of Stewardship Services of the UCCAN has arranged a simple and straightforward insurance package which allows you to make a gift of life insurance to the church without medical questions. (Please be aware that this insurance is quite expensive compared with regular individual insurance policies, and is restricted to $50,000 maximum cover, and age of the insured between 18 and 65. Donors should be advised that if a life insurance company would find them insurable, he or she should not apply for the expensive automatic issue type of insurance, which for example Norwich Union sells. Regular policies for which medical underwriting is done will cost less.)
There is a second type of charitable life insurance, where you make a gift of an existing policy. If you have an existing policy which is no longer needed for your family or business, you can donate the policy by making the church the owner and beneficiary. The charity would issue a receipt for an amount equal to the cash surrender value, plus each year issue a receipt for the premiums paid, once it receives proof of the premium payments. The receipt is then used to calculate the resulting tax credit. No further tax credit is generated at the time of death. The life insurance proceeds upon payment are received tax free by the church. The church has the right to partially access the cash value of the policy at any time; to cancel the policy at any time; or, to continue to pay the premiums if the donor ceases such payment.
The great advantage of life insurance is that it does not decrease the size of your estate.
4. Charitable Remainder Trusts and Gifts of Residual Interest
If you have cash or an asset that you have considered leaving to the church in your will, but you would like a tax benefit now, then a charitable remainder trust may be your answer.
You make an irrevocable gift of the asset to the church. The church issues a receipt and the donor uses it to claim a tax credit. Calculating the size of the receipt is somewhat complex. It is based on the present value of what the church expects to receive when you die. This depends on your life expectancy and a discount interest rate - the corporate bond rate related to the life expectancy in years is a good guideline since Revenue Canada does not direct that a specific interest rate be used . The church may wish to consult with a tax accountant and Revenue Canada for guidance in this matter.
Thenceforward the Trust must pay to you at least annually all income generated by the contribution to the Trust; the principal amount reverts to the church upon your death.
A Gift of Residual Interest allows you to donate an asset today (eg. personal residence, work of art, investment property) , and enjoy the use of it for the rest of your life. Again, you receive an immediate tax receipt for the present value of the donated asset.
(Gifts of appreciated property can be structured to reduce capital gains, however the resulting charitable receipt will be reduced. Due to changes in tax laws within the last few years, as mentioned earlier, which now ensure the resulting tax credit will more than offset the resulting tax on any capital gains incurred by the donation, this strategy of reducing the deemed donation amount in order to reduce the capital gain is no longer relevant. )
The value of your trust can be replaced in your estate with a life insurance policy funded through the income from your trust and by the value of your tax credit.
5. Major cash gifts and Interest-Free Loans
The special gift which offers the most immediate benefit to the donor and to the church is a Major Cash Gift. Cash gifts qualify for an immediate tax receipt which can offset tax payable on income and capital gains. The receipt can be used over the next five years if needed, since claimable charitable donations cannot exceed the limit of 75% of net income in any one tax year.
For those who have no immediate need for the principal, but would like to reclaim it after a number of years, perhaps to pay capital gains taxes on death, then an interest-free loan to the church will provide needed income from that principal directed to church needs. The income from the principal is not taxable either to the church or the individual. If the individual forgives all or part of the loan in the future, then an immediate tax receipt is issued for the amount.
6. Gifts of Publicly Traded Securities
Inform the charity that you wish to make a gift of securities (stocks,
bonds, mutual funds, segregated funds), then instruct your stock broker to transfer the securities to the charity's account. You receive a tax receipt for the value of the securities as of the day they are received by the charity. As detailed in the section "Accounting Basics" above, the normal taxable income inclusion rate of 50% for capital gains is reduced to zero for transfer of publicly traded securities. This is a significant concession, making the gift of securities attractive, particularly if it is not a good time to sell.
7. Gifts of Strip Bonds
A strip bond (as all bonds) is purchased at a discount and redeemable at par on a certain future date. A strip bond, or "zero coupon" bond, is a bond that as been divided into two parts. The coupon, or interest, from the bond has been separately sold, leaving the principal portion. Strip bonds tend to out-perform GICs in terms exceeding five years. Unlike GICs they can be sold at market value before maturity.
There are two ways of making a gift of a strip bond:
- Give one to the church which you already own;
- Give the church money to buy a strip bond for you.
You will receive a tax receipt right away for either the value of the bond at the time it is received by the Church, or for the amount of money that you give to the church to buy the bond.
Strip bonds are high security, using only top quality bonds;
They have a guaranteed return if kept to maturity;
The maturity date can be chosen to be from 10 to 20 years;
They can help the church plan. In fact the church can encourage the gift of strip bonds with staggered maturity dates to
meet expected needs over several years.
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Whichever method of giving you may choose, you are encouraged to indicate your intentions to the United Church
Department of Stewardship services by sending them the short form included
in the brochure "Special Gifts Create Miracles," or the associated
committment form. In
return you will receive a handsome acknowledgment certificate and pin.
Summary
Congratulations on reading down this far! This document is necessarily detailed, but we trust you are able to extract from it the answers to specific questions.
If you are planning to make a bequest to the church, thank you most
sincerely on behalf of your congregation, present and future. Your bequest will be treated with the utmost care for the benefit of the congregation, following to the letter any specific designations made by you.
Your church has many needs, immediate, intermediate and long term. These needs can be met through prayer-lead stewardship of your bequest.
APPENDIX
The following resources will be helpful to members of the congregation who inquire about special gifts:
"Special Gifts Program" by the Department of Stewardship Services, United Church of Canada (Much of the
information above is extracted from this)
"Special Gifts Create Miracles" - brochure, including a form to indicate your intentions to the United Church
Department of Stewardship services
Commitment Form to indicate your intentions to the United Church
Department of Stewardship services
Will Workbook - an estate planning guide, by the Department of Stewardship Services, United Church of Canada
Other publications that can be obtained from the Ontario Ministry of the Attorney General are Powers of Attorney for Property, and Powers of Attorney for Health (living will).
