The Community Foundation of PEI

What are the types of gifting options available at The Community Foundation?

There are many options available to donors wishing to gift to The Community Foundation of Prince Edward Island. A detailed description of each is available below.

Cash and Cash Equivalents
Life Insurance
Bequests
- Making a Will
Corporate Securities
Charitable Remainder Trusts
Asset With Residual Interest
Other Assets
Gift Plus Annuities
Interest-Free Loan
Shareholder Loan
Wealth Replacement Insurance

Cash and Cash Equivalents

What it is:

A gift of cash or other financial instruments that can readily be converted to cash (e.g.: Treasury bills, GIC's).

Who it's For:

Donors who wish to make an immediate financial contribution to the community. Donors who wish to build a fund over time. Donors who wish to reduce their income tax load.

Advantages To Donors:

Straight forward.
Recognition available as part of your current recognition program.
Immediate reduction of income taxes owing.
As gift is made prior to death, it does not form part of the "Estate" and is therefore not challengeable by interested parties, and does not affect various estate settlement fees.

Disadvantages To Donors:

Cannot be reversed and therefore asset no longer available to donor.

Tax Effect:

The donor receives an income tax credit for all amounts up to 75% of net income as defined in the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed in the current tax year) forward for five taxation years.
In many cases, immediate benefits can be obtained by retired or self-employed persons by reducing quarterly tax instalments.
Employed persons may obtain immediate authorization to reduce employer income tax withholdings.

Typical Example:

Cash gift provided to Community Foundation while pursuing other gift option opportunities. The gift can be made to support the community fund or directed to a specific fund.

Top

Life Insurance - Existing Policy

What it is:

A gift of an existing life insurance policy.

Who it's For:

Donors who have been paying premiums on a policy for some years and have no further need for the protection it offers.

How it Works:

The donor donates the policy designating the Community Foundation as both owner and beneficiary.
If the policy is paid up, no further premium payments are required. The Foundation issues a charitable receipt for the cash surrender value.
If the policy requires further premiums, the donor continues to make premium payments. The Foundation issues a charitable receipt for the cash surrender value at the time of the transfer. A further receipt is issued for premiums paid subsequent to transfer.
Normally, the donor makes payments directly to the Insurance Company. In December of each year, the Insurance Company issues a letter to the Foundation specifying premium payments for which the Foundation issues a receipt to the donor.

Tax Effect:

The donor receives an income tax credit for all amounts up to 75% of net income as defined in the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Top

Life Insurance - New Policy

What it is:

A gift of a new life insurance policy specifically for charitable purposes.

Who it's for:

Donors who wish to leave a significant amount to their Community Foundation through a modest annual gift or by a one-time premium gift.

How it Works:

The donor makes arrangements with a life underwriter for a policy designating the Community Foundation as both owner and beneficiary. The donor clarifies their intent by letter to the Foundation regarding designation.
The donor makes premium payments on schedule directly to the Insurance Company. Annually, the Insurance Company informs the Foundation of the premiums paid. The Foundation, issues a charitable receipt to the donor.

Tax Effect

The donor receives an income tax credit for amounts up to 75% of net income as defined in the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Advantages to Donors:

Able to establish significant future legacy by a modest annual donation, a lump sum payment, or no actual outlay of cash for a fully or partially paid up policy. Especially of interest to younger donors who desire to provide significant benefit but currently lack wealth to make an immediate substantial gift.
Immediate reduction of income taxes owing for premium paid or for cash surrender value of existing policy.
As gift is made prior to death, it does not form part of the Estate and is therefore not challengeable nor attract various estate settlement fees.
Immediate recognition available as part of the Community Foundation.s recognition program.

Disadvantages to Donors:

Once put in place, proceeds of policy cannot be directed to one.s estate or other named beneficiary.

Typical Examples:

Many people acquire insurance policies for specific reasons, such as mortgage insurance or to provide a safety-net until a business or career is established. They eventually find they no longer have a need for the policy. These policies can become charitable gifts either by naming the Community Foundation as a beneficiary or transferring ownership of the policy to the Community Foundation. If the donor wishes to obtain tax relief, the Community Foundation must be named as owner and beneficiary.
Many donors lack the financial ability to make a substantial gift. The use of life insurance can assist a donor to make a LARGE gift. The donor can insure himself or another person.
Donors who provide a gift to the Community Foundation which affects the value of their estate can take out a life insurance policy to "replace" to their heirs the assets represented by the gift. The life insurance can be paid for with tax savings from the gift. Truly a win-win situation. The donor receives immediate recognition for their gift and an opportunity to see it work, the heirs benefit from the life insurance policy and the Community Foundation receives immediate use of the income from the donor's gift.

Top

Steps In Establishing a Life Insurance Gift

Donor makes the necessary arrangements for insurance coverage. The Community Foundation should be included as both owner and named beneficiary. Donor should also request that advice be sent annually to the Foundation on premiums paid and who paid these.
Donor sends a letter to the Foundation. The letter should include:
- a) A summary details on the policy (life insured, insurer, policy number, date, owner, beneficiary) and a copy of the policy;
- b) A specific request that the capital donation received be held in perpetuity (defined by Revenue Canada as "at least ten years") in the endowment fund for the named charity.
Donor makes premium payments.
The insurer informs the Foundation in writing annually of details of premium payments (amount and person who paid).
The Foundation issues a charitable receipt for the amount of the premium payment. This qualifies as a deduction for income tax purposes.

Top

Bequests

What it is:

A gift to a charity, designated in a will, payable from the estate on the death of the donor. The gift may be a specified dollar amount, a percentage, specific property or residue of the estate.

Who it's for:

Donors who wish to leave a gift to a charity after ensuring their loved ones and all other obligations are taken care of.

How it Works:

The donor makes specific arrangements in the will for a gift to be made to the community foundation.
Gifts can be in a number of forms, including:
- One lump sum cash payment (a legacy),
- Specific asset, such as real estate, personal property or securities;
- All or a portion of remaining estate after debts, expenses and legacies are distributed (a residual);
- Residual interest in asset such as home or piece of art which is used by beneficiary or designated user during lifetime and then reverts to the community foundation.

Tax Effect

The donors estate receives a final income tax credit for all amounts up to 100% of final years net income as defined in the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The estate may carry back excess donations (those not claimed the current tax year) for the previous taxation year.

Advantages to Donors:

Allows donor of modest means to make substantial gift from accumulated wealth.
Assets not affected during life-time.
Provision can be changed, during lifetime (assuming mental [legal] capacity exists) by writing a new will or preparing and executing a codicil to the will.
Immediate reduction at income taxes owing in year of death and immediately preceding year.
Recognition as part at community foundation's planned giving recognition program at time of death.
Immediate recognition available as part at community foundation's planned giving recognition program if foundation is notified in writing Of the gift in advance.

Disadvantages to Donors:

As gift is NOT made prior to death, assets do form part of the Estate and is therefore;
- Challengeable by relatives, such as the spouse and/or children;
- Subject to various estate settlement fees;
Generally, donor does not see actual benefit of gift, as it occurs after death.
Where substantial estate gifts are made, it is possible that a portion of the available charitable receipt may not be utilized in the year of death and the immediately preceding taxation year. Although some post-mortem tax planning can be accomplished, some alternatives which might have been available before death are no longer available.
Anonymity not available as probated will is publicly available in Court Registry.

Typical Examples:

Legacy gift Mrs. Williams, a long time community foundation volunteer, leaves $10,000 to each of a number of organizations which made a difference to the community. The community foundation is one of these beneficiaries.
Beneficiary upon conclusion of Life Interest - Mrs:. Williams had promised her nephew that he could have the use of her home and car during his lifetime. Upon his death, they pass to the Community Foundation.
Residual gift - Now that those legacy gifts are taken care of, remaining debts and funeral expenses, probate, legal, accounting and executor fees are paid the community foundation will receive all (or a fixed percentage) of the remainder, the residual, of the Estate.

Top

Making a Will - Legal Terms and Their Meanings

Administrator:	A person designated by the Court to distribute property of those who die without making a will (intestate) or naming an Executor. See also: Personal Representative.
Beneficiary:	Person or charity designated to receive property by will.
Bequest:	A gift of property given by will. (syn: Legacy)
Bequeath:	To give personal property in a will.
Codicil:	A document modifying, adding to or qualifying a will. This is the legal way to make changes to a will. (You can also redraft your outdated will and include a clause revoking past wills.)
Devise:	To give real property in a will.
Estate:	All property1 real and personal, owned by a person at the time of death.
Executor:	A person named in a will to distribute the property according to terms of the will. (See also: Personal Representative)
Intestate:	Dying without a valid will. In such cases, the estate is distributed according to Provincial law.
Heir(s):	The person(s) who inherit(s) the property. (syn: Legacy) Generally a monetary gift. (See also: Bequest)
Legacy:	Generally a monetary Gift. (See also Bequest)
Personal Representative:	Person(s) appointed by will or by the Court to administer an estate.
Probate:	To prove in court the validity of a will.
Property:	Real property: land, buildings, etc. Personal property: cash, securities, insurance, jewelry, etc.
Residue:	Property left in an estate after payment of debts and distribution of specific bequests.
Will/Testament:	Legal document giving instructions for distribution of property after death.

Top

Corporate Securities

What it is:

A gift of shares in a publicly-traded company.

Who it's for:

Donors who have an excess of securities in their portfolio.
Donors who wish to reduce capital gains tax, preferring the money remain in the community.

How it Works:

The donor transfers marketable securities to the Community Foundation. The Foundation may hold or dispose of the securities depending upon their fit in the portfolio.The Foundation issues a receipt to the donor for the current fair market value (FMV).

Tax Effect

The donor receives a tax receipt for the full value of the securities. The value will be determined by the closing trading price at the end of the trading day in which the securities were received. When transferring the gift as a security (rather than cash) only 37.5% of the capital gain will be added to the donor's taxable income instead of the previous rate of 75% as was the case prior to 1997.
The donor can receive an income tax credit for all amounts up to 75% of net income as defined in the Income Tax Act. In addition when donating listed securities, donors are allowed to add 25% of the taxable portion of the capital gain to determine their maximum amount creditable for that taxation year. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.
The tax benefits for gifts of securities were changed significantly in the 1997 Federal Budget with an advisement that the tax incentives as indicated here will be reviewed and possibly removed, in 2003. Please consult your financial advisor for the most recent information.

Top

Charitable Remainder Trusts

What it is:

An irrevocable donation placed in trust, with the income paid to the donor for life and the remainder paid to the Community Foundation.

Who it's for:

Donors who require a lifetime income and want the remainder (residue) to flow to the Community Foundation rather than to the trust issuer (insurance company, etc.) and who may want to access carry forward tax relief.

How it Works:

The donor, the Community Foundation and the trust issuer sign a charitable remainder trust agreement.
The Foundation issues a tax receipt for the present value of the expected residue (the principal sum of the trust discounted over the donor's life expectancy).
The trust issuer provides income to the donor on an agreed basis.
On the death of the donor, the principal of the trust is paid to the Community Foundation.

Tax Effect

A donation receipt is issued for fair market value of the residual interest retained by the Community Foundation. Generally, valuation is relatively straight-forward and is based upon a valuation of the gift property, the expected duration of the life-interest, .representative. interest-rate and life-expectancy.
The donor receives an income tax credit for amounts up to 75% of net income as defined in the income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Advantages to Donors:

Lifetime income for donor.
Immediate reduction of income taxes owing for residual portion of capital settling trust, as long as it is irrevocable.
As gift is made prior to death, it does not form part of the Estate and is therefore:
- Not challengeable by relatives;
- Is not subject to the various estate settlement fees.
Immediate recognition available as part of community foundation planned giving recognition program.

Disadvantages to Donor:

Cannot be altered or reversed once put in place and therefore capital sum used to settle trust no longer available to donor, even if personal health or financial circumstances face catastrophe.

Typical Examples:

Donor decides that he wishes to assist the Community Foundation when he dies, wishes to retain an income for the period prior to death, desires anonymity and wishes this to occur silently.

Top

Asset With Residual Interest

What it is:

A gift of an asset (e.g. the donor's residence) with a provision for lifetime use by the donor.

Who it's for:

Donors who wish to have their estate in order, to clarify their charitable interests and to obtain recognition for their gift while living.

How it Works:

The donor contributes an asset to the Foundation with an agreement that the donor retains the right to use the asset for as long as they live. Examples include homes and pieces of art.
The Foundation has the asset evaluated and issues a charitable receipt for the present value of that amount projected to the donor's life expectancy. If that value exceeds the donor's adjusted cost base (ACB) (original purchase price) for the asset, the donor may choose an amount between the ACB and the calculated present value where a principal residence is gifted, the same process applies but capital gain is not a factor. In this case1 the donor should take a receipt for the full present value.

Tax Effect:

Donation receipt is issued for the fair market value (FMV) of the residual interest retained by the Community Foundation. Generally, valuation is relatively straightforward and is based upon a valuation of the gift property, the expected duration of the life-interest, representative interest-rate and life-expectancy.
The donor receives an income tax credit for amounts up to 75% of net income as defined by the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Advantages to Donors:

Able to assist Community Foundation now by putting into place a deferred gift that will benefit the Foundation in the future.
If circumstances change1 the life-interest can be donated and a charitable receipt issued for its value.
Immediate reduction of income taxes owing.
As gift is made prior to death the life interest (held by the donor)and the residual interest (held by the Foundation) do not form part of the Estate and are therefore;
- Not challengeable by relatives.
- Are not subject to various estate settlement fees.
Immediate recognition available as part of the Community Foundation.s planned giving recognition program.

Disadvantages to Donor:

Cannot be reversed and therefore asset no longer available to donor.

Typical Examples:

A review of personal inventory may identify redundant, unused or under-utilized assets that could be donated to the Community Foundation but which the donor wishes to maintain access or use.
A gift of a residence can be either an outright gift or a deferred gift. It is a deferred gift when the donor deeds the property to chanty, but retains a life interest, which entitles the donor to remain living in the residence until death.
A prospect for this kind of deferred gift is an elderly person who is comfortably situated with a home and substantial investment income.

Other Matters:

In the case of a principal residence, the following matters will need to be clarified;
- Who will be responsible for repairs, maintenance, insurance?
- What will happen if/when donor needs to go into a nursing home or other type of accommodation?

Top

Other Assets

What it is:

A gift of non-cash assets such as:
- Closely-held corporate securities.
- Real estate.
- Principal residence or other.
- Personal-use property such as artwork, jewelry and other collectibles.
- Gifts-in-kind.
- Equipment, services.
- Inventory.

Who it's for:

Donors who have other assets they wish to gift without the trouble of converting these to cash.

How it Works:

A donor contributes the asset to the Foundation. The Foundation obtains an assessment of market value and decides whether to dispose of the asset or keep the asset for future disposition. The Foundation issues a charitable receipt for the proceeds from disposition. If the Foundation chooses to retain the asset the Foundation issues a charitable receipt for the fair market value at the time of transfer to the Foundation.

Tax Effect:

Donation receipt is issued for the proceeds from disposition or from the fair market value of asset if not immediately disposed of by the foundation.
The donor can receive an income tax credit for all amounts up to 75% of net income as defined in the Income Tax Act. For amounts over $2OO the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Advantages to Donors:

Able to assist Community Foundation by transferring non-cash asset which may not be required to meet current or future needs of donor.
No need to write cheque to assist the Community Foundation.
Immediate reduction of income taxes owing.
As gift is made prior to death it does not form part of the Estate and is therefore:
- Not challengeable at time of death.
- Does not attract various estate settlement fees.
- Immediate recognition available as part of the Community Foundation.s recognition program.

Disadvantages to Donor:

Cannot be reversed and therefore asset no longer available to donor. (If use of asset during life is desired, please refer to Residual Interest gift option #6.)

Typical Examples:

A review of personal inventory may identify redundant, unused or under-utilized assets that could be donated to the Community Foundation.

Other Matters:

Independent valuation is required of non-liquid assets exceeding $1000.
No capital gains result on disposition of principal residence unless surrounding property exceeds 1/2 hectare in size.
Special rules apply to the calculation of capital gains resulting from the disposition of personal-use property which is defined as property not held to produce income but merely with the intention of owning it for personal use or enjoyment.
Gifts of services are not considered a gift of property and, therefore, no receipt is issued unless services invoiced to the foundation, paid for, and the amount gifted and receipted back. This results in a wash transaction.
Special rules apply to the donation of artist's inventory in cases where they treat the costs incurred in creating the inventory as deductions from income as they are incurred. This should be clarified by the artist's professional advisors/accountant.
In the case of land, it is essential that sufficient investigation be carried out to ensure that the land is not contaminated that it be lien-free, etc.
In the case of property that cannot be directly utilized by the Foundation, it is essential that a ready market be available to dispose of the property.

Top

Gift Plus Annuities

What it is:

A donation where a portion is used to purchase an annuity payable to the donor and the remainder flows to the Foundation.

Who it's for:

Donors who wish to support a charity but also require an annual income.

How it Works:

The donor contributes an amount of cash to the Community Foundation with the understanding that annual income will be provided for a lifetime (or on joint lives). The donor then receives a series of periodic (monthly/quarterly/annually) guaranteed payments for life (generally a guaranteed period of say ten years is selected). The Community Foundation uses the portion of the gift required to provide the income to purchase an annuity from a third party (e.g., an insurance company).
On the donor's death, any residue is retained by the insurance company unless the Community Foundation is designated as the beneficiary whereby, in the case of the donor's death prior to the expiry of the guaranteed period, the residue is paid out to the Foundation.

Tax Effect

The Foundation may issue a charitable receipt for the difference between the amount contributed and the total expected value of annuity payments.
An income tax receipt is issued only if the gift amount exceeds the amount expected to be returned to the payment recipient (referred to as the annuitant). This is determined by multiplying the total of annual annuity payments by the life expectancy of the annuitant.

Advantages to Donors:

Receives a guaranteed amount of money periodically. Able to arrange for payments that will be paid for the donor's life to ensure that the payments do not stop prior to death.
Immediate recognition available as part of Community Foundation planned giving recognition program.
Joint life annuity available.

Disadvantages to Donor:

Cannot be altered or reversed once put in place and therefore capital sum used to purchase the annuity no longer available to donor.
Periodic payment amount is subject to inflation and ever diminishing purchasing power which may not adequately meet basic needs, in the future.

Top

Interest-Free Loan

What it is:

An interest-free loan is given to the Community Foundation. The interest from the loan becomes the gift to the Foundation. The loan is generally repayable within a number of months (say three) upon written request.

Who it's for:

A donor who has excess cash available for an extended period of time, who does not need the income from the interest generated.

How it Works:

A donor provides an interest-free loan to the Foundation. The Foundation invests the money and retains the interest earned. At an agreed time, the original loan is returned to the donor. As a registered charity, the Community Foundation is not taxable on the interest earned whereas the donor would have been.

Tax Effect:

No direct tax benefit to the donor as the net effect is the same as the donor receiving the interest directly and gifting a similar amount to the Foundation The donor~ however, would pay tax on the interest earned if not loaned to a charity.
Donation receipt is issued for any amount of the loan that is forgiven by the donor. The donor then receives and income tax credit for amounts up to 75% of net income as defined in the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed in the current tax year) forward for five taxation years.

Advantages to Donors:

Able to assist community foundation without giving up assets.
If circumstances change loan can be called and money returned.
If circumstances permit, entire or portion of loan can be forgiven which is the same as a gift.
Immediate recognition available as part of Community.
Foundation.s planned giving recognition program.

Disadvantages to Donor:

As gift NOT made prior to death, loan repayment does form part of the Estate and is therefore:
- Challengeable by relatives.
- Is subject to various estate settlement fees.
Loss of income from loan.
Donor liable for tax on income earned.

Typical Examples:

Donor may pledge and wish to fund a major gift, however, due to 50% income limitations would run the risk of charitable donation receipts not being fully utilized if entire gift made immediately. This option offers the ability to put up all the money, which may assist the Community Foundation to proceed and also allow the donor to gradually forgive the loan as their income will permit donations to be utilized.

Top

Shareholder Loan as Charitable Gift

What It Is:

A debt instrument is donated to the Community Foundation.

Who It's For:

Donors who are owed money by a company in which the donor holds shares. The donor is insurable and wishes to help a charity.

How It Works:

The company creates a debt instrument equal to the value of the outstanding loan. The company also purchases a life policy on the donor equal to the loan value.
The debt instrument is issued to the donor who in turn donates it the Community Foundation. The Foundation issues a charitable receipt for the amount of the loan.
The company pays interest to the Foundation. The instrument may be redeemed by the company at any time but no later than 60 days after the donor's death.
On the death of the donor, the company receives the insurance proceeds and redeems the debt instrument.

Tax Effect:

The donor's adjusted cost base on the debt instrument is equal to the loan value; there are no capital gains tax implications.
The donor receives an income tax credit for the value of the charitable receipt up to 75% of net income as defined by the Income Tax Act. For amounts over $200, the donation reduces tax liability at the full marginal tax rate.
The donor may carry excess donations (those not claimed the current tax year) forward for five taxation years.

Top

Wealth - Replacement Insurance

What It Is:

The purchase of an insurance policy with the donor's Estate as the beneficiary, to cover the amount of a gift made today to the Community Foundation.

Who It's For:

Donors who want to support the Community Foundation but are concerned about encroaching on the amount to be left in their Estate.

How It Works:

The donor makes a current gift to the Community Foundation. The Foundation issues a tax receipt for the gift. With the savings on taxes from the gift, the donor purchases an insurance policy with the objective of replenishing the gifted capital.

Tax Effect:

Donation receipt issued for the value of the original gift. There is no tax advantage on the purchase of the life insurance is it is being purchased in the name of the donor and his/her Estate is the beneficiary.

Advantages to Donor:

Insurance enables donor to make current gift while still ensuring Estate has capital available for distribution.
Recognition available as part of community foundations current recognition program.
Immediate reduction of income taxes owing.

Disadvantages to Donor:

None.

Typical Example:

Donor wishes to provide for family members upon his death; however, also wishes to assist the community foundation during his lifetime.

Top