Building a strategic philanthropic plan

Tracey McLennan, CFP®, MFA-P™, FEA, Director and Senior Wealth Consultant 

If you’re a wealthy Canadian, you might be thinking about using your wealth to create positive change and make a lasting impact on the lives of others.

A philanthropic plan helps families and their businesses organize their giving, prioritize what matters most, and ensure that donations have the desired impact. It clearly outlines goals, focuses on key causes, and contributes to a strategy for effective giving. This approach helps families ensure that resources are used wisely and are allocated to initiatives that mean the most to you and your family.

There are countless ways to give back. An Edward Jones financial advisor in cooperation with our Client Consultation Group, a team of high-net-worth specialists, can help you through the process of building a strategic philanthropic plan. Let’s get started by learning more about what strategic philanthropy is and how to give in meaningful ways.

What is strategic philanthropy?

Strategic philanthropy is intentional charitable giving that can be integrated into a family or a business strategy. It's based on a person's, family's, or business's vision, values, and mission, and extends beyond donations to help maximize the impact of every dollar given.

Benefits of a philanthropic plan include:

Considerations before you give a charitable donation

Evaluate your financial resources 

Evaluate your financial resources when creating your philanthropic plan, considering what you will need to meet all your financial goals:

1. Assessing resources and needs so you have what you need for your lifetime

   First, ensure you have sufficient assets and income to cover living expenses, healthcare, emergencies, and the long-term goals that are important to you, such as the retirement you envision.

2. Family impact and wealth structuring

   This involves reflecting on how you wish your remaining wealth to benefit your loved ones. This includes making strategic decisions about estate planning, taxes, gifting, and wealth protection.

3. Philanthropic intent and community impact

   After securing the financial needs of you and your family, it’s time to consider your charitable aspirations. Determine how much you can and wish to allocate to charity, when you wish to give, and decide what recognition and reporting you may want.

Decide what, when, to whom and why you want to give a charitable donation

When building a philanthropic plan you will want to consider these factors:

1. What to give

   Set your charitable budget based on your financial situation. Decide if you want to donate a fixed amount or a percentage of your earnings or assets.

2. When to give

   Create a giving schedule based on your financial capacity, the needs of the causes you support, and opportunities such as matching donations, tax optimization, or special events that could increase your impact. 

3. To whom to give

   Research non-profits and projects that align with your values. Look at their effectiveness, transparency, and measurable impact. Consider causes that resonate with you, whether locally or globally. Consider:

   • Why you say “yes” to give to some causes or charities and “no” to others.
   • The groups you wish to help or recognize.
   • The causes you are passionate about. Whether you want your donations to benefit your community or other communities.

4. How to give 

   Explore various ways to give, considering potential tax benefits and the potential to maximize your impact. Ensure your charitable giving aligns with your family values and goals.

Ways to give a charitable donation

Charitable giving comes in many forms, each with distinct benefits. Cash donations provide immediate support with potential tax deductions and offer simplicity and flexibility. Volunteering allows you to give time and skills, engaging directly with causes while fostering personal growth. In-kind donations of publicly traded shares may 3 4 1 2 maximize tax benefits while performing regular portfolio rebalancing as a part of your ongoing investment management. Other ways to give could include gifting property, putting bequests into wills for charities or gifting life insurance policies.

Ways to give for wealthy families

Wealthy families may have a wider range of options better suited for larger or long-term contributions. The right choice ultimately depends on your personal preferences and goals.

Cash

Cash may be the simplest way to give. Giving cash can be immediate and respond to unexpected charitable needs. Making a charitable donation provides an individual with a tax credit. The first $200 of annual donations receives a 15% federal tax credit plus the applicable provincial tax credit. Donations above $200 are eligible for a 29% tax credit (or 33% for the income above $253,454). The maximum amount of donations you can claim in a given tax year are limited to 75% of your net income, except in the year of death and the year preceding death where donation claims may equal 100% of your net income. It may be beneficial to carry forward your charitable tax credits and you may do so for the next 5 years (or for the next 10 years for a gift of ecologically sensitive land made after February 10, 2024).

Donation of Appreciated Publicly Traded Shares 

The donation of appreciated publicly traded shares may provide a greater tax credit than the donation of cash. This is because if you donate eligible securities “in kind” to a registered charity, you pay no tax realized on the gain of these securities. Eligible securities may include:

• Stocks or bonds listed on a designated stock exchange,
• Certain mutual funds or segregated funds of life insurance companies.

You also receive a full tax credit for the fair market value of the securities as of the day of transfer to the receiving charity. 

This can also be a useful strategy for corporations. Should a corporation donate appreciated publicly traded shares, a tax deduction equal to the fair market value of the securities as of the day of transfer is available to the corporation and the non-taxable portion of the capital gain will increase the Capital Dividend Account (CDA), potentially allowing the corporation to pay this amount out tax free to its shareholder(s) if there is sufficient cash on hand to make the payment. 

You should seek the opinion of your tax advisor when determining whether to donate personally or from your corporation as other factors may apply, such as the Alternative Minimum Tax (AMT).

Donations of Insurance Policies

Donating a life insurance policy or proceeds from a policy to a charitable organization is a strategic way to contribute to a cause that you care about. This usually requires a permanent life insurance policy, such as Whole life or Universal Life, and can either involve transferring ownership of the policy to the charity or naming the charity as the beneficiary. If transferring, once the organization owns the policy, it can either hold onto it until the death benefit is paid or take cash out of it for the immediate benefit of the charity.

Considerations on how to give a charitable donation

Private Foundations

A private foundation is a non-profit organization created by an individual, family, or corporation to manage their charitable giving. Foundations offer donors significant control over how their charitable contributions are distributed. You can contribute cash, stocks, real estate, or other assets to the foundation and then make grants to support causes and organizations of your choosing.

Donor-Advised Funds (DAFs)

A donor-advised fund (DAF) is a philanthropic tool that allows you to contribute to a charitable account, receive an immediate tax deduction, and recommend grants to your preferred charities over time. It’s an appealing alternative for those who want the benefits of structured giving without the administrative responsibilities of a private foundation. With a DAF, your contributions are held in an account at a public foundation, which provides you with a tax receipt for your donations. Each year, you can suggest grants from your DAF to other registered charities. DAFs are popular for their simplicity, flexibility, and tax advantages, as they may allow you to donate cash, stocks, or other appreciated assets, as well as insurance policies.

Donating to a Community Foundation

Community Foundations are locally run foundations that are an important supporter of other charities in the community and can be as varied as the communities they represent. There are often multiple ways to donate to a community foundation, including trust or endowment funds that support long-term charitable goals. They may offer a simpler alternative to a private foundation, providing a lasting legacy without the responsibility of managing funds. Community foundations pool donations to generate income for causes like education, health, and the environment, ensuring local impact and sustainability.

Corporate Donations

Corporate philanthropy is an impactful way for companies to support charitable causes, either through cash donations, in-kind gifts, or employee matching programs. Corporations often align their charitable giving with their corporate values and corporate social responsibility (CSR) goals, benefiting both the community and the company’s reputation.

Donations through Wills or beneficiary designations

You can benefit a charity by making a gift in your Will or, alternatively, where allowed by law, you can designate a charity as beneficiary of accounts such as your RRSP, RRIF, TFSA or FHSA. In addition to tax benefits that may minimize the terminal taxes paid by an estate, estate gifts may allow you to continue to have the charitable impact you desire past your lifetime.

Steps to creating a strategic philanthropic plan

A strategic plan provides a clear framework for you, your family, and/or your business, to help you determine and stay focused on what truly matters. While keeping your plan updated is essential, creating and maintaining it doesn’t have to be a daunting task. Following these steps will help guide you:

Tax considerations of charitable giving 

Tax considerations may play a significant role in building a strategic philanthropic plan, as they can directly influence the structure, timing, and overall impact of your charitable giving. By understanding the tax benefits associated with different forms of donations—such as cash, appreciated securities, or life insurance—you can optimize the value of your contributions while maximizing tax deductions. Working closely with financial and legal advisors is essential to ensure your philanthropic strategy is both impactful and tax-efficient, aligning with your long-term financial and charitable goals. 

Crafting the Hsen family strategic philanthropy plan 

With the key questions listed above answered, the Hsen family engaged with consultants including their Edward Jones advisor, lawyer and accountant and began to formulate their strategic charitable giving plan.

The family decided to create the Hsen Family Foundation, a private family foundation with an initial endowment of $5 million. This foundation would serve as the primary vehicle for their charitable activities.

They defined the focus areas as:

To prepare for the launch of their foundation, the Hsen family:

Outcomes and Reflections

After the first five years of the Hsen's Family Foundation’s operation, the family was pleased with the progress they had made. They had successfully funded numerous scholarships and supported several environmental initiatives. Several members of the family had shown an interest and were now engaged in their charitable activities.

Through their strategic charitable giving plan, the Hsen's were not only able to make a substantial difference in the world but also establish a legacy of giving that would last for generations. 

Next steps 

If you’re a wealthy Canadian looking to formalize your giving, seek advice from a qualified professional before acting on any of the information in this article. An Edward Jones financial advisor can help you with your wealth planning including ways to build, maintain, and protect your assets throughout life. Together with our Client Consultation Group, a team of highly specialized and accredited professionals that serve clients with complex financial needs, we can help you by taking a personal approach and tailoring solutions to help you meet your financial goals.

Edward Jones, its employees, and financial advisors cannot provide tax or legal advice. Consult with your qualified tax or legal professional for specific recommendations