How to make charitable giving go further as inflation and interest rates rise

People who think like philanthropists have already set aside money for the causes they want to support – whether in a private foundation, donor-advised fund or bank account – so they are less likely to modify their plans based on current market conditions.donald_gruener/iStockPhoto / Getty Images

Are you a professional financial adviser? Register for Globe Advisor then subscribe to the weekly newsletter on our newsletter subscription page. Get exclusive news and insights on the investment industry, top headlines of the week, and what you and your clients need to know.

Canadians often make charitable donations towards the end of the year, both as a seasonal tradition and to take advantage of a tax deduction in the current tax year. But, in the face of inflation, rising interest rates, market volatility and a potential recession, some may scale back their charitable plans.

This makes it all the more important for advisors to show their clients strategies that allow every dollar donated to go further.

“In general, people these days are, of course, more cautious about how they choose to spend their money,” says Jennifer Watson, managing partner at Watson Investments in Oakville, Ont., and an advisor at Aligned Capital Partners Inc.

“We want to help our customers do what they want with their money, and help them do it in a way that preserves as much money as possible and grows their money. … It’s no different with charitable giving.

According to Ms. Watson, one of the most tax-efficient ways to give is to make an in-kind gift of a security that has a capital gain. Although the financial markets have been choppy this year, there are still a few. Transferring a title directly to a charity means there is no capital gains tax and results in a donation credit of the current market value.

For those who are business owners, Ms Watson says it is worth considering carefully whether it makes more sense for the company or the individual to make the donation.

If the money must come from a company to cover a personal donation, it is important to have other reasons for incurring the associated tax. This may make sense, for example, for someone who will be applying for a new mortgage and who needs to prove a certain personal income. If there is no good reason to withdraw money from the business, making a corporate donation may be a better option.

“You look at it…from the perspective of what else is going on, and then how can I access money with the least amount of taxes paid and still achieve the value that we’re trying to achieve “, Ms. Watson said.

Take a strategic approach

Thinking like a philanthropist — rather than making one-time, small donations — can stretch charitable funds, says Marvi Ricker, managing director of family philanthropy and legacy planning at the BMO Family Office in Toronto.

She says philanthropy must be “done in a way that is meant to have an impact on an issue, and it must be measurable and [driven by] a thoughtful process over a long period of time.

People who think like philanthropists have already set aside money for the causes they want to support – whether in a private foundation, donor-advised fund or bank account – so they are less likely to modify their plans based on current market conditions.

Ms. Ricker adds that people can maximize their charitable giving by looking for matching opportunities. For example, to support the recovery from Hurricane Fiona, the federal government announced that it would match individual and corporate donations to the Canadian Red Cross for at least 30 days after September 25. And, periodically, wealthy donors step in to match donations up to a certain amount to encourage donations to fundraising campaigns for health care and education. Matching gifts mean that every dollar donated is worth two dollars to the charity.

“My role in advising people is not so much to say, ‘Give this rather than that,’” says Ms. Ricker. “It’s to help [clients] understand what is important to them. What are their passions and aspirations? What are their interests in the charitable sector? And then to help them do it effectively and efficiently and in a way that they know they’re having an impact.

Systematize charitable giving and get creative

Charlie Spiring, founder and chairman of Wellington-Altus Financial Inc. in Winnipeg, says the wealthy generally stick to their philanthropic plans. It’s the middle-class people who are feeling the pinch in the current environment. He also thinks a more strategic approach to charitable giving can help.

“The key is to do your planning ahead and put your [philanthropic] attribution away. Some people make 1%, some 2%, and some 5%,” says Spiring. “But if you really, really, strongly believe in it, planning will get you there. And when you put money aside, you don’t seem to miss it that much.

He has seen this strategy work in practice. As an example, he cites United Way campaigns that encourage people to donate a little from every paycheque. Systematizing charitable giving makes it a habit, and habits are hard to break.

It’s also possible for people – including advisors – to leverage their time and creativity to amplify charitable contributions. During the pandemic, Mr Spiring approached his biggest customers and explained that he and his wife planned to buy meals from struggling restaurants to feed those in need. In the end, he raised $1 million that helped keep restaurants afloat, their employees working, and people fed.

“It was great to connect those who had the time, money or both to make this work,” says Spiring. “There is always a way if you have the will.”

To learn more about Globe Advisor, visit our home page.

Leslie M. Gill