This #AskMeAnything (AMA) focuses on the most commonly asked questions posed by family business leaders on philanthropy and social finance.
National Family Business Days are celebrated around the world, typically from mid-September until mid-October. In honour of those families who contribute more to their country’s GDP than what is measured by financial metrics, we salute you! 80% of North American’s GDP is created through small and medium sized businesses, the majority of whom are family-owned.
To answer the #AskMeAnything questions we turn to some of the Trusted Advisors whom we have had the pleasure or working with over the years. Their expertise ranges from business coaches, to accountants, from portfolio managers to insurance agents throughout North America. If you find what they have to say insightful, please let others know. If you have more questions, please leave a comment and we will be sure to connect you.
Giving while living… Legacy Planning
To start off our questions we reached out to Stephen Nikoforuk. Stephen is a graduate of the Family Enterprise Advisors program and a CPA, CA. His firm, MyOwnCFO Professional Corporation, is a Multi-Family Office assisting successful families with managing the complexities of their financial lives that has come with their success.
Q: I am not sure what charitable organizations I want to support right now. I know ultimately I want to support others rather than put more in the hands, in the form of taxes, of our governments today. How can I do so?
A: There are several vehicles that can be used to park your capital in today for distribution to organizations in the future. A Donor Advised Fund (“DAF”) is one such vehicle. This is an account held at a financial firm in trust for the purposes of charitable giving. You direct the DAF to send funds to a charity at some future date. By doing so, you get the same tax deduction today by putting that capital into this trust.
K&C created a comparison chart of the different Giving Vehicles to help you understand the differences between the various products in the Canadian market.
Q: Is it better to give to others during my lifetime, or have the gifts made when I and my spouse die?
A: There are many facets to this question. By waiting until you die, you do not get to see for yourself the positive impact your gifts can have on charitable organizations and the people and causes they support. Additionally, there may be an opportunity to maximize the tax benefits of giving each year while you are alive. Philanthropy as a tax-planning tool is a sound way to manage your taxes today and into the future.
By delaying your giving, you may also be missing out on opportunities to enhance what you are trying to accomplish with your gifts by engaging family and friends alongside you.
To read more about Giving While Living check out the blog post about the Philanthropy Planning Calendar.
Social Impact Investing & Social Finance
Eric Bennett is our next guest contributor. Eric is a Senior Wealth Advisor at Scotia Wealth Management. He has been providing financial guidance to Western Canadian families and advisors for over a decade and is currently the president of his Rotary Club.
Building off of Stephen’s question about giving while living, Eric answers the following about when to even start your legacy planning:
Q: When is a good time to even consider establishing our legacy? We are too busy to have to think about such things, and to be honest, we are probably going to keep it all in the family at the end of the day…
A: When we look at the projected final estate values we can see a major tax liability. At the “end of the day” you have the option of leaving your hard earned money in 3 places:
your community or
Typically our clients chose the first 2 options. A little planning now can go a very long way to ensure that your family (and your legacy) will get the maximum amounts from your estate, and that CRA will benefit the least. (*A “donate to eliminate” strategy resonates deeply with most of the families we work with. Only once have we come across someone who actually wanted to leave more money to CRA… needless to say… we do not work with them now.)
There are two sides to the philanthropy coin – the perspective of the donor and that of the charity. This question explores the charity’s outlook on philanthropy.
Applying life insurance to philanthropy planning
We now turn to the side of insurance products for wealth planning and philanthropic giving. Dustin Daniel CFP, CLU is a Partner with Deboski & Co. Dustin specializes in insurance planning for entrepreneurs and medical professionals and has done so at Deboski for over ten years.
Q: Why would our family choose to fund a portion of our philanthropic strategy with life insurance?
A: At a minimum of three core reasons for integrating life insurance with your philanthropy plan apply here:
- First, certainty and control that the benefit will be paid directly to the charity.
- Second, life insurance tax advantages for private family enterprise, family foundations and families that give.
- Third, economics, the cost of insurance is often, much lower than the multiple of the benefit received by the charity.
Each family’s wealth structure is unique and designed for that family. When considering insurance policies for philanthropic activities it is important to know what your end-goal and payout is so that you can meet the charitable obligations you have set out in your lifetime.
With the end at the beginning
As you may be aware, at Karma & Cents, we start by working backwards. What is it that you want to accomplish with your legacy and how do you want to involve others. By having a sense of what this looks like you can identify the giving vehicle that will help you achieve your philanthropic objectives.
We believe that everyone can be a philanthropist. It is not about the dollar amount, but about the impact that you want to create. In this spirit we have created a Six-Step Guide to Giving. This guide walks you through a process for articulating the type of philanthropist you want to be, where to access additional information and the questions to ask of experts, whether they be tax, financial, legal or philanthropic.
Philanthropy is a transaction based on an emotional experience. For business owners and their families, wealth planning includes considering how to balance these emotional transactions with smart financial management.
Celebrating this year’s National Family Business Day, we recognize the impact that your families and businesses have on the social fabric of our communities. Thank you for your generosity and support of the agencies that make up our society – healthcare system, our educational system, the arts & culture and sports & recreation in our communities, our research & development and science & innovation space. Our world is a better place because of the role that family businesses play in supporting charities and non-profits.