Sharing good fortune
Advisers help their clients develop strategic wealth transfer plans that suit them and their families. courtneyk via getty images
Significant gifts to charities help wealthy families pass on their values to the next generation
The world’s ultra-wealthy play a significant role in transferring some of their wealth to support charitable causes. In its latest report, the business intelligence firm Altrata notes that the ultra-high-net-worth people – those worth US$30-million or more – gave a total of US$190-billion to philanthropic causes in 2022, almost 25 per cent more than in 2018, and made up nearly 38 per cent of all individual giving.
The ultra-wealthy in North America transferred US$91-billion to charities – almost half the global total – reflecting the region’s elevated wealth and long-standing tradition of public giving, according to the report.
With strategic wealth transfer to charities trending upwards, wealthy individuals and families are relying increasingly on specialist advisers to set up philanthropy plans that help them reap the benefits and navigate the potential pitfalls of significant gifts.
Lawyer Troy McEachren, a Montreal-based partner and estates, trusts and charity tax specialist with the law firm Miller Thompson, says people are no longer simply signing a cheque and giving money away.
“A lot of donors who make large donations want to participate in the charities they support; they want to be involved and see their philanthropy in action,” he says.
Contrary to popular belief, Mr. McEachren says people don’t donate to charities for tax reasons alone.
“They give away money because they’re driven by the morality of doing good. They want to do good; it’s a fundamental part of their vision and of their place and role in society,” he says.
“I’m seeing high-net-worth and ultra-high-net-worth families using philanthropy as a part of their value transfer to the younger generations. They were very fortunate to have the skills and acumen to accumulate wealth, but it comes with this sense of responsibility to give back. ”
Mr. McEachren adds that donations by wealthy people is often also a significant factor in passing on their values to the next generation.
“I’m seeing high-net-worth and ultra-high-net-worth families using philanthropy as a part of their value transfer to the younger generations. They were very fortunate to have the skills and acumen to accumulate wealth, but it comes with this sense of responsibility to give back,” he says. “So it’s never really a tax-driven proposition, it’s always a value proposition that they’re interested in.”
Julie Muir, a financial adviser and president of Podium Prosperity Group in Barrie, Ont., says motivation is a key factor in transferring wealth to a charity.
“Somebody in their family has died from cancer or recovered from a heart attack because the paramedics picked them up quickly and got them to the hospital and everything went fine,” she says.
Involving the whole family is important because philanthropy is learned, says Ms. Muir.
“You learn it from your church, your school, your next-door neighbour, your parents. So, as our clients become wealthier, we want them to have the children involved now and at death,” she adds. “That helps prevent problems later on because sometimes the kids are shocked by how much their parents have left to charity.”
Ms. Muir says financial advisers with a focus in philanthropy help donors clarify their vision and guide them through different scenarios they may have not considered such as tax implications, how much they can transfer without negatively impacting their lifestyle, their future financial needs, the type of assets to transfer and the timing.
Mr. McEachren says a philanthropy plan is as important as a financial plan.
“We work with donors and their financial advisers and accountants to understand their needs and build a philanthropic plan that is not just a one-time donation, but that can be continuous donations that will meet all of those needs,” he says.
It’s also important to do due diligence on the charity that will receive a donation, adds Mr. McEachren.
Ms. Muir says the type of assets that can be transferred to a charity vary widely and need not necessarily be money only.
“Securities, real estate, items of cultural value, art, jewellery, investments, life insurance policies …almost anything of value can be transferred to a charity, although not all charities are equipped to accept some types of assets,” she says. The most powerful and under-utilized can often be a solid life insurance strategy.
Good research is one of the best ways to avoid some of the obvious pitfalls in strategic wealth transfer to a charity, adds Ms. Muir.
“Work with your advisers to know what the tax implications are,” she says. “Your adviser should assist you to know the Canada Revenue Agency rules and how they impact you, know what charities can accept what assets, watch for legislative changes that could affect your donation, make sure the charity you are donating to can issue a tax receipt because not all non-profits can.”
To view this report on The Globe's website, visit globeandmail.com
To view the full report as it appeared in The Globe's print edition Strategic wealth transfer