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Deciding on a charitable giving plan?

Donation, bequest, endowment? Farm families can achieve a huge amount of good with their generosity, but be sure to plan it carefully

As more farm families get further into their transition and succession planning, charitable giving is becoming a critical part for many to incorporate into their plans. On more and more farms, in fact, questions surrounding meaningful donations and how to create impact are becoming cornerstone conversations for the family.

“Farmers are deeply rooted in their local communities. Giving back to their hometown or local organization can be an integral part of a successful transition plan for a farming family,” says Maggie Dalke, estate and trust consultant with Scotiabank. “Farm families should first and foremost talk about what matters to them and what organizations or causes align with their legacy plans as a family.”

“It’s about their values,” agrees Darrell Wade, founder of Farm Life, a farm succession planning firm in Ontario. “So many are stewards of our land and want to help continue some legacy around agriculture or faith, or what they consider to be a meaningful charity.”

Tony Ambler is a consummate entrepreneur who has founded businesses in several industries including Yorkshire Valley Farms, an organic chicken, egg and turkey business. Ambler says giving is “in his DNA and family roots,” and was a part of his upbringing, with his family placing a high value on charity for the past several decades.

“You either have it or you don’t and it’s quite hard to change it,” Ambler says. “Our family has never been about money, it’s always been about success. If you focus on success and not money, then you are willing to part with it. If you are always focused on money, it’s harder to give it up.”

For Ambler, charitable giving has always meant looking at society as a whole and the infrastructure that supports it, not just at the farming community itself. And it’s also meant conversations with his children, currently in their late 20s and early 30s.

“You want your children to participate and lead by example,” Ambler says. “It’s part of what we learn in 4-H ‘… my heart to greater loyalty, my hands to larger service … For my club, my community, my country, and my world.’”

So when is the ideal time to plan your legacy and make charitable donations?

First and foremost, you need to establish where you want to create impact. Mike D’Alessandro, co-founder of Park Place Financial and certified financial planner says there are common themes when starting discussions with farm families on legacy planning. “People who give always have a real sense of community,” D’Alessandro says. “They understand that the communities where their business operates either support them financially or provide their workforce, and there is a strong sense to want to make sure those communities are successful and sustainable.”

Once impact is established, it’s important to speak with your accountant, lawyer or financial advisor about your charitable wishes and how best to integrate legacy planning in your overall estate plan.

“We want to be able to determine the best way to meet the client’s legacy intentions, while ensuring their tax is minimized and their beneficiary’s best interests are also considered and protected,” says Matt Holmes of Holmes CPAs and Tax Advisors.

These meetings are crucial to determine the expected tax implications to the overall estate and what impact will the gift have for estate tax exposure. “For example, consideration could be given to whether it makes sense to make smaller gifts over their lifetime to limit their annual tax exposure,” he says. There are also cases where it makes financial sense to create a foundation and establish charitable giving through it.

At 80 years old, Jerry Paxton has deep roots in the agriculture industry and started several businesses over the course of his lifetime in the Ottawa Valley in trucking, warehousing and affordable housing development. But it was a scare with his heart when he was 51 years old and had a near-death experience on the operating table that got him thinking.

“That was when my light went on, and it changed my life.” Jerry had always been involved in giving back to his community and at the time had been overseeing an affordable housing development for seniors outside the Greater Toronto Area. His hospital experience deepened his resolve to give back.

“I realized there was more to life than working to just pack away money,” Paxton says.

As a result, he and his family began devoting more time to causes close to the family’s heart, including overseeing the development of another affordable housing unit for seniors in central Ontario while continuing to grow family businesses.

Upon retiring, the Paxton Family Foundation was established to continue the legacy of giving to causes important to them. “There is no feeling like giving,” Paxton shares. “We all hear it is better to give than to receive, but there really is no feeling like giving and watching what other people do with it.”

Vital ‘how’ questions

“There can be very advantageous financial and tax reasons for legacy planning which can be very attractive particularly for farmers,” states Maggie Dalke, Scotia Wealth Management . This includes looking at creative methods available where there are unrealized capital gains within farm corporations.

“Unique rules involving the use of the tax-free capital dividend account may provide added benefits to gifting of property held in a farm corporation that may also allow the individual to later extract additional proceeds from the corporation on a tax-free basis,” says Matt Holmes of Holmes CPAs and Tax Advisors, who notes it is always best to begin these conversations early with your trusted professional team.

To help get started, here are some points to consider when planning for charitable giving in your estate plan:

Gifting in your will

“Your will can be amended to add charitable beneficiaries to create a lasting legacy in support of the causes that you care about,” says Hayley Maschek, partner, specialty tax, with MNP. “The gift can be a set dollar amount, a percentage or residual of your estate, or even specific assets. This will allow you to create a legacy that can carry on well after your passing.” Maschek notes there are several other ways you can give to charities on your passing, including: Naming the charity as the beneficiary of your registered accounts (RRSP, RRIF, and/or TFSA); using your life insurance to make charitable donations by naming a charity as the beneficiary of your life insurance policy or even donating the policy itself prior to your passing; or donating other types of property, including shares of a company, or land and buildings. Maschek notes it’s important to outline your goals and then seek professional advice about all of your options. “There are ways to reduce taxes and estate administration fees that will allow you to leave a bigger legacy,” she points out

Unique tax advantages for agriculture industry

“The agriculture industry has tax advantages others don’t,” says Matt Holmes. One example has to do with special rules where the property being gifted is ecologically sensitive land. “Gifts of ecologically sensitive land may allow the donor to avoid having to report and realize any capital gains on the property, while giving a tax credit on the full value of the property. The benefits are further enhanced where the land is owned in a corporation. There are also land trusts dedicated to the preservation of farmland to ensure that the land being donated is only forever used for the purpose of farming. They may also provide donation receipts for the value of placing an easement or restriction on the property that ensures its only future use is for farming purposes.”

Is it more beneficial to gift in a will or while alive? “Gifting during lifetime is beneficial where an individual may have more significant taxable income during lifetime as it allows them the benefit of minimizing income tax during their life,” Holmes says. “If an individual has significant estate tax they are facing on their passing due to either large capital gains on property or an expected income, inclusion from RRSPs providing a more significant gift in their will would help to limit the amount of estate tax.”

How to feel confident with giving in your estate plan

“Planned giving is usually most possible with families that are comfortable with their estate plan; they have an idea of the value of the farm and other assets and have a well-defined succession plan in place. This gives them the space to look outside the family and to the wider community,” says Emily Racine, estate and trust consultant, Scotia Wealth Management. “The most important thing in any legacy planning conversation is to make sure it is being driven by the clients’ values. Often times, there are certain organizations the client already supports and would like to continue to support.”

– This article was originally published as ‘The right gift,’ in the April 2022 issue of Country Guide

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