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AFS Insights

Charitable Giving Series: Part 3

Case Study: One Family’s Philanthropic Journey

By Neil Menzies

Michael and Linda, 61 and 57, are empty nesters approaching retirement. Michael is a successful entrepreneur who will be finalizing the sale of his business later this year for cash. Linda is a VP at a company she has worked at for 20 years, since its startup days, and she owns shares in the company which she wants to sell soon. The sale of Michael’s business will trigger a significant tax bill, and they would like to explore ways to be as tax-efficient as possible.

Their three adult children are all either travelling or attending university, and they want a way to stay connected with each of them through their family values. One family value they hold firmly is their charitable spirit. Michael and Linda often give throughout the year when friends are fundraising and then, with haste, make more significant donations each December. But they are often left with a lingering sense that they aren’t doing enough for the causes they care about most.

Having already scheduled an appointment with their Arbutus Financial Advisor for an annual review, Michael and Linda requested to set aside 15 minutes to discuss the sale of his business and their charitable endeavors. The team carefully listened and then put together a charitable giving plan. Instead of donating cash from the sale of Michael’s business, they suggested donating Linda’s company shares, in kind. They saved on taxes in two ways: they paid no capital gains tax on Linda’s donated shares and received a donation tax credit.

Steps:
• Open a donor advised fund
• Donate a portion of the shares Linda has accrued from working at her firm for the past 20 years, pay no capital gains on the donation valued at $100,000
• Receive a tax receipt from Chimp Foundation to offset their income with the donation tax credit from Linda’s donation
• Sell Linda’s shares and invest assets to grow over time and generate income to disburse regularly

Was it successful?
Michael and Linda reduced their tax bill, put together a charitable giving plan, and did it all painlessly. But, most importantly, they’ve found a way to make an impact on the causes they care about while sharing the value of generosity with their three kids. Each summer, the family gets together at their cabin for a long weekend and sets aside one evening to discuss what causes matter to them most, and they each decide how to disburse their share of the fund’s income (20% each).

It’s stories like these that inspire us to work hard to help make being charitable both easier and more effective for our clients. We hope you have enjoyed our series on charitable giving. Get in touch with the Arbutus Financial Team if you would like to discuss solutions for you and your family’s philanthropic future.

*This is only an illustration. Please speak to an advisor to discuss tax implications and options for you and your family.