S1 E11: How Savvy Investors Save Taxes AND Make a Difference - with Carol Bezaire

Want to donate to your favourite charities using the secrets of Canada's wealthiest families? We've got you covered!

Today, we're talking with Carol Bezaire, Vice President of Tax, Estate and Strategic Philanthropy at Mackenzie Investments. 

In this episode, we'll talk about:

1. Who gives to charities in Canada?
2. What are the tax benefits of giving to charity? How do Charitable Tax Credits work and how much can I save?
3. What if an individual client donates securities instead of cash? 
4. How does a Donor Advised Funds (DAFs) work?
5. What are the advantages of donating using your own DAF?
6. How can a financial advisor help with charitable giving?
7. What are the steps to opening a DAF? What happens after the DAF is opened?
8. Stories of people who've made an impact on their community and family using DAFs.

Resources in this episode:

Philanthropic Foundations of Canada
Mackenzie Investments Charitable Giving Program

Hosted by Glory Gray

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Music
Background Intro music: Positive Determination
Other incidental by Purple Planet Music

This podcast is for informational purposes only and should not be construed as investment, tax or legal advice. It is not an offer to sell or buy or an endorsement, recommendation or sponsorship of any entity or security cited. Mutual funds offered through Portfolio Strategies Corporation. Other products and services provided through Glory Gray Wealth Solutions.

All content © 2024 Glory Gray.

Transcript

Carol Bezaire: 0:03

They got 27 checks from 27 different foundation accounts. And they came in and said, "I don't understand what this is." We explained what the donor advised fund was and how they're going to get checks every year because these clients have decided that's what they want to do, and they actually sent a video about a year and a half later, because they had been able to set up a whole new encampment in the Congo.

Glory Gray: 0:49

Welcome to Women's Wealth Canada, I'm Glory Gray. I came across a quote by Winston Churchill recently, he said, "We make a living by what we get. But we make a life by what we give." What does it mean to you to be charitable? Do you like to volunteer your time? Maybe you have a cause that you care about and you donate to them every year. In Canada, we have a tax system that provides generous incentives for us to give to charities. It makes sense...the more we give to charities who support our communities, the less burden the government has to take on to support those same communities, it's a win win for everyone. It's no coincidence that some of the wealthiest families in our country are often the most generous donors. Their reasons for giving may have nothing to do with the tax breaks, they received for giving but it certainly doesn't hurt. One of the benefits of being an independent financial advisor like myself is the wonderful tax and estate planning education is continually available to me by all the different financial institutions I work with. Not long ago, I was on one of those webinars that talked specifically about the tax benefits of charitable giving. One of the speakers on that webinar is our guest today, Carol Bezaire. Carol is the vice president of tax, estate and strategic philanthropy at McKenzie Investments. In her role she leads a team of six tax and estate planning professionals and three financial practice management experts, Carol has her CERTIFIED FINANCIAL PLANNING and chartered life underwriter designations and is also a member of the Society of trust and estate practitioners, and the Canadian Tax Foundation. I'm excited to have Carol share her knowledge with you. Come listen in and learn how savvy investors save on taxes, and make a difference in the world. So let's talk a little bit about the charitable space, in Canada, who gives to charities in Canada?

Carol Bezaire: 2:45

It's based on demographics, quite often. Through the philanthropic foundation of Canada--It's where I got my information. So, one of the issues is age. 52% of Canadians who give generously are aged 55 and up, mostly because they don't have that much in the way of debt anymore. Also you're looking at the higher income or the higher net worth Canadians who do have it to give, or you also have the third part is those who are connected personally to maybe a religious cause. Maybe it is family structure like children at risk, mental health, and also the people who are giving most generously, are the people who have just had some kind of a windfall. Maybe they won the lottery, they got an inheritance, they're downsizing their home. They've been widowed, not a lot of kids. So they start giving to charity to start saving some tax money as well. So the demographics are pretty good, but the really good trend right now is the millennials because they want to be socially responsible. They're starting to look at charitable giving, as a way to give back. And if they can make a donation on their smartphone, they're happy doing that,

Glory Gray: 4:07

Are they interested also in regular ongoing donations kind of a Netflix idea, a membership idea?

Carol Bezaire: 4:16

Everything works the way that generations work. So millennials do like the computer savvy stuff, but people 55 And older like a little more structure in what they do and they like more transparency, which is where a donor advised fund comes in.

Glory Gray: 4:33

Okay, so what are the tax benefits of giving a charity?

Carol Bezaire: 4:38

The way that the government has set up the tax credits. Now this is a non refundable tax credit, which means you have more tax credit than you have tax to pay you don't get a refund. But if you have more tax credit leftover, you can use that excess in any of the next five years to lower your taxes. So it's almost like prepaid tax. So, British Columbia, is one of the most generous for tax credits for individuals, it's at 47.7%, which means you don't get $1 for dollar deduction, you get a credit against your taxes. So for $1,000 donation was 47.7% It means you're going to get a tax credit, $477, to be used against up to 75% of your net income in any one given year. Anything over $200 will get that 47.7%. And it varies by province,

Glory Gray: 5:42

It's not a write off... I'm not reducing my taxable income I'm actually reducing the amount of tax I owe?

Carol Bezaire: 5:47

That's right. So, what many people forget, if you donate $1,000 You don't get$1,000 tax credit, you get the federal and provincial and it varies by province. So, in BC, it's 47.7%

Glory Gray: 6:03

What if, and this is where I get excited... So what if an individual client donates securities instead of cash so they have a mutual fund or they have stocks or bonds in a non-registered account, not in their RIF not in their RSP or TFSA, so it's in their non-registered investment account, they have these securities that they've had for a long time, it's worth a lot more than what they bought it for. And if they cash it in, There's going to be some tax and capital gains tax that they're going to owe but what if they decide instead, what if I donate the securities straight to the charity instead of selling it and then donating all the cash, what happens then?

Carol Bezaire: 6:51

Yeah, and that is an excellent way that financial advisors can help their clients, because yes, you've had a successful portfolio. And now some of your clients are stuck. I spoke to one client, he worked for TD Bank for 40 years, and his adjusted cost base on his TD Bank stock was like nine dollars. So, we just said you know what if you donate some of those stocks in kind, and have the charity sell it, because a charity is tax exempt. So it moves in, most charities have a trading account, send those in... the capital gain is 100% eliminated. So if you have a stock you bought for $30, and now it's worth $100 you're going to have a $70 Capital Gain liability, where one half of it is taxable. But if you donate that in-kind, there's no capital gain at all, but you still get the donation tax credit, so it's like two presents, for one gift. And we have seen at MacKenzie, is if you donate just enough to trigger that donation tax credit, the capital gain on the rest of your stock.. you don't have to donate all of it... but the capital gains liability on the rest of the stock can be offset by the donation tax credit, so then you can rejig your portfolio. So it's a great thing to do,

Glory Gray: 8:28

And then perhaps you can go and purchase the stock, again, all the old capital gains liability has gone away, and now you can go purchase the stock again if you'd like that stock and carry it forward.

Carol Bezaire: 8:42

Perfect, yes, you can reset your ACB, and you can reinvest again. Absolutely. And we have a number of clients who are really interested in doing that. And the other way that we talk about that, Glory is for some of the older clients. So if they're sitting on a large unrealized capital gain, what is that going to look like if you pass away tomorrow? Do you want to give to the government, or do you want to give to society and preserve more of your estate by looking at strategic philanthropy and maybe in kind donation now.

Glory Gray: 9:22

So, how do Canadians give, what are the vehicles in which they can give?

Carol Bezaire: 9:30

So there's two main ways, Glory would be direct giving, where you send your check to the Cancer Foundation, or United Way, whatever you want, and about 88% of donations are made directly, but the new way of doing it in Canada that's getting more popular is 12% will give indirectly. So, indirectly would be setting up your own private foundation. I usually use the Bill and Melinda Gates Foundation, or the Warren Buffett Foundation as an example. So you run it, you have all the meetings you do all of that. The other indirect is with the donor advised fund. And that is set up, usually in financial institutions. MacKenzie has one, TD private wealth has one, Scotia private wealth has one. And what that is is very similar to your own private foundation, but it's all set up for you, as the donor. But you work with your financial advisor, who becomes an agent to the charity itself, because we have the registered charity set up, which is like the omnibus or the large Foundation, and in it is your own individual sub account, and that's where you have the control and the transparency of having your donations managed by your adviser and advised as to who the money is going to flow to, and how the investments are going to be made with the idea at the end, although it's indirect, the charity still will get the money, but with active investment, they're going to get more money over time than they would if you just cut a check. So more people are looking at that, it's a big, big business in the US as well, because of the addition of the financial advisor helping with all this.

Glory Gray: 11:27

So let's break this down and for the listeners on the mechanics of how a donor advised fund works step by step. I'm a charitably minded person, I go into my financial advisor's office and I say I'd like to make a difference, I'd like to give to a number of charities over the next few years. And I'd like to make the most out of the money and grow it rather than just running a check. So, what would they do?

Carol Bezaire: 11:53

So they would sit with a financial advisor decide that this is what they want to do, and decide whether or not you want to set up your own private foundation which means you have to go to a lawyer and an accountant to get your charitable registration number, you have to do all the accounting, you have to do the tax filings, you have to have quarterly meetings of your board of directors your board of trustees, or you can work with your advisor and say, Okay, I want to set up my donor advised foundation account and your advisor will do that, they will then fill out the paperwork with you. First thing would be, what do you want to call your foundation? What would you like to call it, because all the checks will go out under that name. You can name it anything, usually, but, you know, a bad word. It could be the Bezaire Family Trust, or the Bezaire family charity trust, bring my family into this, and all of the, the checks will go out under that name, and it's set up under the Strategic Charitable Giving Foundation at MacKenzie, which is the registered charity. So then we decide, okay, if we're going to set this up and name it, how do I want to make the donation? It can be cash. It can be appreciated securities as we just talked about, it can be an insurance policy that maybe I don't need anymore. And it has the cash surrender value to it, I can donate that and it will just sit and wait in my foundation account until I pass away, and then that will fund the money that's going to flow to the charities of my choice. So the third thing we do is that we look at, okay if we've got cash in here, I'm going to work with my financial advisor to decide which investments we're going to use in there to grow the money over time. So, all foundations are usually balanced and income funds, or that kind of investing. Then we look at which charities. Do I want to help the Alzheimer's foundation? I may have two or three that I want. I had one lady who was quite elderly, she has 23. So her account... she passed away about six years ago, her husband and predeceased her, they have no family. So, when she passed away. I had told her, you know, these 23 checks you write every year will continue to go out to those 23 charities until there's no money left in your account. So, that preserves the legacy as well. And then how much do you want to give to each charity? Is that, you know, you've got three you want to give a third to each one? Do you want to, every year you can look at do I want to give more this year to one, do I not want to give to this one. So it's very flexible, you can change any year, who you flow the money out to. We have a lot of them that are just standing orders. I just want these two charities for the rest of my life and after, to get the money in my foundation account so, and you can change your mind anytime that you want. So that's basically the steps, it's like, decide to do it. Name your account. Pick the investment. Look at how much grant, which is the money that flows to the charities, and which charities. So that's pretty much all it is and then everything else is run for you through the foundation administration, you don't have to worry about the paperwork, cutting the checks, and as soon as you make a donation, you're going to get your donation receipt, up front, and you're not going to get it from the main charities that you're funding anymore, you get it all up front you can plan better

Glory Gray: 15:55

And even going forward, if you know you're going to have a year that a lot of tax is going to be owed, and you have had this donor advised fund in place you can make a another contribution to the account and receive the tax receipt for it.

Carol Bezaire: 16:12

You can put in another donation anytime that you want, and also with a donor advised fund, third parties can donate. So, if I have my foundation, and you decide well I like what you're doing with yours. Why don't I give you a check or whatever, then you'll get the donation receipt. But the beauty of that is a lot of families... we just opened one for husband and wife, and their daughter decided I want to donate to your foundation. So it's become a whole family issue and a family conversation which is really nice.

Glory Gray: 16:49

And at the end of the summer when they're all together they can decide okay, what, charities do we want to give to this year, so that could happen too, right?

Carol Bezaire: 17:00

Oh yeah, absolutely. We have one grandmother who set up three accounts, because she wanted to teach charitable giving to her three grandchildren. So she's joint on all three accounts with the grandchildren. She's working with them and they get to name the charity and research the charity, of which one they want to sponsor, so they don't have to do it all together, they each have their individual cause that they really think is important and Gramma helps with that and puts some money in,

Glory Gray: 17:33

And we talked about how they will name the foundation. Is there an opportunity for them to give to each individual and charity anonymously every year?

Carol Bezaire: 17:43

Yes, they can do that, they can have their charity name, or they can just send it anonymously so the charities, just get the money. The important thing is streaming the money out to the charities. And we're not competing with the charities what we're doing is helping them, because it's a great way, now that charities can't do a fundraising gala, and it's really hard to do fundraising activities other than sending out, you know hey Glory here's this program and I think you'll be interested in. Now this is a way to continually help fund them so that they can meet their budget constraints, especially during the pandemic and that is something that the charities are very, very grateful for.

Glory Gray: 18:32

So let's run through and summarize all the advantages of donating to using your own donor advised funds. So we talked about it's possible if you want to give anonymously, you can work with your family members, and whoever donates... any third party actually who donates to your account will receive a tax receipt for that. What other advantages are there? Let's wrap them all up here.

Carol Bezaire: 18:58

Well, with the donor advised fund as well, it is a legacy, how do you want to be remembered? So one of the accounts I sold, the gentleman was 95. He had no family, and what he wanted to do was fund two specific charities. So we set up the account and he named it because...What he was worried about was that his last name would run out when he passed away. So, he opened his account. he named it. He didn't fund it. What he did was he went to his lawyer after he opened the account and had the name of the account, he went to his lawyer and he tied his estate to his foundation account. When he passed away a couple of years later, The advisor who had helped him with this got This $3 million estate. And now every year those two charities receive a 10% grant out under the name of that charity, so his legacy is going to live on for quite a number of years until all the money runs out. And that's what was really important to him. So you could do it, you could donate during your lifetime, you could send a donor advised fund account up and not even fund it until you pass away, or you name your foundation account on your insurance policy, so many different ways that you can utilize a donor advised fund that maybe you can't do when you're doing a direct donation.

Glory Gray: 20:30

So it does not have to be funded initially if it once it's opened.

Carol Bezaire: 20:36

Correct. So it'll just sit there as a shell, there's no admin fee on it. With a donor advised fund, there is an administration fee that is attached to the account, but that is because if you have your own private foundation you're paying accounting fees and you're paying for tax returns. So with the donor advised fund, it's the foundation administration that will process all of the donations, will produce the donation tax receipt, and does all the reporting. The mega Foundation is already set up. At Mackenzie, it's the Strategic Charitable Giving Foundation that has the board meetings. They do all of that they oversee everything, so you can rest assured that your money is being taken care of and you have the transparency of seeing what's happening, and choosing the charities, changing your mind whatever you want to do, but you don't have the work.

Glory Gray: 21:35

And that's considerably less expensive for the donor, and the Strategic Charitable Giving Foundation, their whole purpose is to help these donor advised funds get to the charities that they want to.

Carol Bezaire: 21:48

That's correct. And they make sure that if there is any litigation... like sometimes Glory, you're going to have a charity and that's the challenge that they have. Maybe they're named in the will but the other beneficiary family members don't want them to go to charity, they want it. So even with your donor advised fund, if that comes up, the board at the Strategic Charitable Foundation will take care of that and your family members don't have to worry about it.

Glory Gray: 22:15

That's fantastic. When it is time to fund the account, is there a minimum amount that needs to go in.

Carol Bezaire: 22:22

Yes, so the minimum amount is $10,000. The average donation however is around the $40,000 mark, if not, larger, so $10,000. And then subsequent is only $500. So when you set it up $10,000. If you're not going to make a donation, then you don't have to put anything in it at all, so you just set the bare bones in place, but if you do want to donate, it's a minimum of$10,000.

Glory Gray: 22:52

Okay, that makes sense. Now how can we is we financial advisors help facilitate these and get the word out about Donor Advised Funds?

Carol Bezaire: 23:03

Great question. One of the things is you can talk to charities themselves. Some of the smaller charities as a matter of fact, maybe have grown to the point where they need their own foundation. And if they don't want to spend the money on it, a donor advised fund can do that so they set it I know that sometimes we advisors can help actually up as a foundation account, and then they just stream the money to themselves, they can do that and advisors can also talk ab ut if you have clients who per aps want to set up a scholar hip. They can set up their d nor advised account. Set a schol rship at the university or coll ge whatever they want to do in t e scholarship area, and then th money will go to fund the sch larship every year, they can han out the check if they want to but the money is growing So, as financial advisor, it's part of your overall discussion of their financi l picture, their investm nt picture, their tax picture their estate planning. So this is just one more little product that you can talk about as an a visor to round out everyth ng, because one of the reasons we launched the donor advised fund at MacKenzie, was becaus advisors weren't really talkin about charity with their client, because they knew they were g ing to lose the invest ents. This way, it become more natural discussion with y ur clients, especially when y u're looking at their portfo io. And, like that one lady, he's got embedded capital gains n there and she's frozen in tim. So that's where the value f advice comes in. And in the US this has been proven very w ll by the Fidelity Charita le Foundation which has about $ 68 billion, and it's the third l rgest charity in all of the US ecause they set it up, knowing that people will make more an more strategic donatio s, if they're talking to their f nancial advisor about it, and not just thinking with their h art but thinking with their head. So it's a value of advic that you can bring as an advis r. research, the ultimate charity that the client wants to send grants to. Do you see that as well in the field? Yes, and yeah, it's also as an advisor talking about your own philosophy for charitable giving, like, what do you do when do you give to charity, and it's an easy conversation to start with clients, especially if you know that they're philanthropic anyway,

Glory Gray: 25:50

We've kind of run through the specific steps to open up a DAF and the first step for a client would be to talk to their financial advisor about a donor advised fund. So, after the donor advised fund is opened, the money continues to grow, and then? is it annually that a client can grant out the money to the charity?

Carol Bezaire: 26:14

By law, every foundation like a donor advised fund has to flow money out to the charities and make sure they do that. So, overall, it's right now, it's called a disbursement quota of three and a half percent, it varies by the donor advised foundation. But for investors who become donors, they can choose in the first year have anywhere between 4% of their donation to 25% to flow to charity. And after that, they could go anywhere from 4% so that we need at least a three and a half, that the government wants to see, to 100%. So if at some point you find, you really don't like the donor advised fund, you could grant out 100% As long as it's still goes out to a registered charity in Canada. You can never get it back because of course it's a donation that is irrevocable, but you can figure out how much you want to have go to the charities of your choice, any year, and it has to be once a year.

Glory Gray: 27:20

And can I name my children as successors if I want this donor advised fund to carry on after I'm gone?

Carol Bezaire: 27:28

Absolutely you can. And they will continue to work with your financial advisor. One of the things we find now is families who have a donor advised fund are talking at you know, they'll meet for drinks with their friends and say, yeah you know we set up our foundation, and we fund, you know, the Toronto Symphony, because I'm in Toronto. And then it's like, oh that sounds like something my family would like to do. So it's really growing in popularity.

Glory Gray: 27:58

Do you have a story of maybe somebody who made an impact on their community and family through a donor advised fund?

Carol Bezaire: 28:05

I do. Yes, I had a gentleman who unfortunately was terminally ill with AIDS. He wanted to set up his own foundation, he had no other family, he'd been very, very successful. And he had gone in to see his, his advisor with his estate lawyer, so the advisor had talked about well instead of setting up your own foundation because who's going to run it if you're not there, let's look at a donor advised foundation. So I went in and I met with them and the one thing he wanted to do as his legacy, was he actually wanted to have his name in the program-- and it happened to be the Toronto Symphony-- to inspire other people to give. So we had this foundation account do that, and it's still running he passed, maybe six months after we got everything set up, but every year, it goes to the Toronto Symphony. Another one that I really am proud of is how many people like Doctors Without Borders, so I got a call from them. They got 27 checks from 27 different foundation accounts, and they came in and said, I don't understand what this is. So we explained what the donor advised fund was and how they're going to get checks every year because these clients have decided that's what they want to do, and they actually sent a video about a year and a half later, because they had been able to set up a whole new encampment in the Congo, and could help another 40, people who were sick, so they're, you know, you never know how you can change the world, but that I love that story because Doctors Without Borders is doing such great work and once they understood what it was, it was like, Oh, we get this every year? So, Yeah, unless the donor decides they want to change their mind.

Glory Gray: 30:02

Yes, that's fantastic, and when the donor passes as in the situation with the gentleman who left his grants to the symphony, Is it the will that designates the instructions to the financial advisor as to what has to be done going forward?

Carol Bezaire: 30:17

Yes, he had filled out all the paperwork, and then he tied his will to his foundation account. So after everything was settled by the estate lawyer it was about two and a half million that went into the foundation account for this gentleman and his advisor continues to oversee the investments, and make sure that everything goes smoothly so his wishes are to a tee being met.

Glory Gray: 30:46

That's fantastic. I love hearing these stories about making a difference and that's why so many people are interested in these donor advised funds in the first place is because they just want to make a difference. They want to see that something has been done, it's almost an immortality, giving to charities because there's something larger than ourselves. There's something that goes beyond, that's beyond us, and I think it's, it's just so wonderful. So what steps should an investor take then, if they're interested in a donor advised fund?

Carol Bezaire: 31:18

If they're interested, they should first talk to their financial advisor, do they know about it, are they familiar with it? Do a little bit of research. One of the best websites around is called the Philanthropic Foundations of Canada, they have a lot of good information. And then figure out what charities, what causes you would like to sponsor and take care of. So, first step is an easy one, talk to your financial advisor, and just explore, see what you'd want to do with it, and whether or not this is...you know your upfront donation gets a donation receipt, but you're going to be ongoing funding, the charities of your choice, and so it's transparent. You can see it, you could touch it, and that's what a lot of people like to see is okay, it's not all going to administration that's one of the things people worry about, so it's just you know what, explore and talk to your financial advisor, and see how this can fit in with your overall financial and estate planning and investment plan, and it's good conversation to have.

Glory Gray: 32:30

And these conversations can ultimately lead to making such a difference so thanks so much for your time today, Carol, I appreciate you being on the Women's Wealth Canada podcast.

Carol Bezaire: 32:40

Well thank you so much for having me, Glory.

Glory Gray: 32:43

My thanks again to Carol Bezaire, Vice President of tax, estate and strategic philanthropy and MacKenzie investments for joining us today. Do you have a story of a charity that has made a difference to you? Send me an email, I'd love to hear about it. What is the one question You Always Wanted to Know About money but we're afraid to ask? Email us at Hello@womenswealth.ca With your question, and we may feature your question in a future episode. Want to review this episode later in a text version? you'll find transcripts on our blog at WomensWealthCanada.com. Until next time, this is Glory Gray, your personal trainer for financial fitness, telling you to take charge of your finances, plan for the future, but, most of all, enjoy today, and bye for now.

Announcer: 33:36

This podcast is for informational purposes only and should not be construed as investment, tax, or legal advice, it is not an offer to sell or buy or an endorsement, recommendation, or sponsorship of any entity or security cited. Mutual funds offered through Portfolio Strategies Corporation. Other products and services provided through Glory Gray Wealth Solutions.