Donating Publicly-Traded Securities

Donating publicly traded securities is simple and very attractive from a tax point of view, thanks to a tax rule that eliminates the capital gains tax that would otherwise apply to such donations.

Consider the following example, where a potential individual donor has marketable securities that originally cost $50,000 and are now worth $100,000. In this case, the donor is considering: Option 1: selling the shares and donating the before-tax proceeds to The 519; Option 2: donating the shares directly to The 519. Each option produces very different tax outcomes. (Note: The following illustration assumes a 50% marginal tax rate):
 

 

Sell shares & donate proceeds

Donate shares directly to The 519

 

 

Fair market value of shares

$100,000

$100,000

Tax cost

$ 50,000

$50,000

Taxable capital gain

$25,000

(50% of gain)

 

$0

Tax on capital gain

$12,500

$0

Charitable tax receipt amount

$100,000

$100,000

Donation tax credit

($50,000)

($50,000)

Net tax savings

($37,500)

($50,000)

After-tax cost of giving $100,000

$62,500

$50,000

 

Donating the shares directly, rather than selling them and then donating the proceeds, gives you the best tax result. You give up property of the same value but you save $12,500 of tax ($50,000 vs. $37,500) by donating the shares directly. 

Gifts of Life Insurance

A gift of life insurance is a great way to give to The 519. For relatively modest amounts of money today, you can guarantee The 519 a substantial gift many years from now. And there are attractive tax consequences from making a gift of insurance. There are several ways you can use insurance to benefit Queen’s – as well as yourself and your estate.

Option 1: Make The 519 a beneficiary
If you make The 519 a beneficiary of a life insurance policy, your estate will receive a donation receipt for the value of the death benefit of that policy. You can name The 519 as the beneficiary of a group, term, whole life or universal life policy.The insurance payout to The 519 remains private and passes to The 519 outside of your estate, speeding up payment and avoiding probate and estate administration fees. For tax purposes, however, the donation will be deemed to have been made by the estate at the time the property is transferred to The 519.

Recent changes to Canadian tax law give more flexibility for claiming tax credits related to donations made on death. To take full advantage of this new flexibility, your estate must satisfy certain conditions .Namely,  your estate must qualify as a graduated rate estate (GRE) and the executors must ensure the donation is received by The 519  within 60 months of death. 

Option 2: Gift a Current Policy
You can gift an existing life insurance policy to The 519.  If it is completely paid-up you can simply transfer it to The 519, making the The 519 the owner and the irrevocable beneficiary. By donating such a policy, you will be eligible for a tax receipt generally equal to the fair market value of the policy as appraised by a certified valuator, minus any policy loan outstanding (note – donors are responsible for the cost of the appraisal). If there are still premiums to be paid, you will, as in the case of a new policy, be eligible for a tax receipt for any premiums paid after the policy is transferred. There are some tax issues with the gift of an existing policy. The gift will constitute a disposition for income tax purposes. This will result in taxable income to the donor to the extent that the value of the policy exceeds the tax cost of the policy.

Option 3: Gift a New Policy
You can purchase a policy and then transfer its ownership to The 519. You  will continue to pay the premiums on the policy for the next ten years – after which the policy will become self-sustaining and continue to grow. Ultimately, your  gift will provide substantial funding for The 519  – and his premiums today are tax deductible. We recommend a whole life type of policy that is paid-up in 10 to 20 years with level premiums. The 519 must pre-approve the policy before the gift plan is finalized and the policy is purchased. You should seek independent expert insurance advice before considering a gift of insurance.

Contact Us
If you are interested in exploring planned giving options and are interested in making a gift of securities  to The 519, please contact Stacy Kelly, Director, Philanthropy, at SKelly@The519.org or 416-355-6778.

The 519 urges everyone to seek legal and financial counsel when planning an estate gift to The 519. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.