Recently my wife received an e-mail from a friend who relayed to us a story about giving that I'll never forget.
Many years ago, my wife's friend worked as a volunteer at a hospital, and she got to know a little girl named Liz who was suffering from a rare and serious disease. The girl's only chance of recovery appeared to be a blood transfusion from her five-year-old brother, who had miraculously survived the same disease and had developed the antibodies needed to combat the illness.
The doctor explained the situation to her little brother, and asked the little boy if he would be willing to give blood to his sister. He hesitated for only a moment before taking a deep breath and saying, "Yes, I'll do it if it will save her."
As the transfusion progressed, he lay in bed next to his sister and smiled, seeing the colour returning to her cheeks. Then his face grew pale and his smile faded. He looked up at the doctor and asked with a trembling voice, "Will I start to die right away?"
You see, the little boy had misunderstood the doctor; he thought he was going to have to give his sister all of his blood in order to save her.
When it comes to giving, attitude means a lot.
Attitude in giving
The fact is, your attitude will dictate how much you're willing to give to charity, and whether you give at all. To those who have asked me in the past about how much they should give, I always respond by saying that there is no answer that's right for everyone. Rather, if your attitude toward giving is governed by three principles, you'll know you're giving the right amount. These principles come from my book, The Tax Freedom Zone. Here they are.
1. Give until you feel it.
A generous woman once shared with me that she only makes gifts significant enough for her to feel them financially. This amount is different for everyone.
2. Give cheerfully.
If you've given a sum of money that leaves you panic-stricken or upset, you've given too much. You need to feel a sense of gladness about your gift. If you're not used to giving much, start out small, then increase your giving as you become more confident.
3. Give without question.
Some people will argue that they give of their time and energy, so a financial gift is not necessary. Unless you can't pay the rent or feed the family, I don't generally buy this.
Don't get me wrong, volunteerism is critical, but so is money. And if you haven't got much, you'll give that much less -- and that's okay. One of the great benefits of giving, besides helping others, is that it offers freedom from what I call the poverty mentality. If you don't feel secure enough with what you have to be able to give to those who are in need or to your favourite charities, then you'll never truly feel wealthy.
You'll always feel as though you haven't got enough -- regardless of how much you actually have. Giving helps to overcome this poverty mentality. It's tough to feel poor when you're cutting a cheque to meet the needs of others.
Methods of giving
While tax benefits may be the furthest thing from your mind when you give to charity, you might as well take advantage of the tax breaks offered. Consider the following five methods of giving.
1. Make a gift in-kind.
Who says you need cash to make a donation to charity? While cash may be preferred by most charities, many are willing to accept gifts of other assets of value. I know people who have donated everything from office supplies, computer equipment, and furniture, to clothing, cars and jewelry.
Before making the delivery, ask your favourite charity whether it can use your stuff. The charity can issue a donation receipt for the fair market value of the item donated. You'll be deemed to have sold the item, generally for fair market value, but your donation credit will more than offset the tax on a capital gain, if any, on that deemed disposition.
2. Make a gift of securities.
When you donate publicly traded securities and mutual funds to your favourite charity (excluding private foundations), the tax collector will reduce the capital gains tax bill on those securities by one-half.
You see, the usual capital gains inclusion rate of 50 per cent that applies when calculating a taxable capital gain is reduced to just 25 per cent when those securities have been donated to charity. This applies whether you give today, or at the time of your death in your will.
The bottom line? If you have charitable intentions, consider giving securities rather than cash.
3. Make a gift of life insurance.
Consider the two most common methods of giving life insurance to a charity. First, you could simply transfer ownership of an existing policy to the charity and name the charity as beneficiary of the policy.
In this case, you'll receive a donation credit for any cash surrender value of the policy, plus any premiums you pay on the policy after you transfer ownership to the charity. You'll be deemed to have sold the policy in this case, but the donation credit will more than offset any tax hit that results.
Alternatively, you could simply buy a new policy, retain ownership of the policy yourself, and name the charity as beneficiary. In this case, you'll receive a donation credit in the year of your death for the life insurance proceeds paid to the charity after you die.
The key difference between these two methods is that the first provides a donation credit during your lifetime, the second provides that tax break on death.
4. Make a gift in your will.
I can't emphasize enough the importance to a charity that generous people give in their wills. Many of us will be able to give more in the year of death than we can during our lifetimes.
This is more important than ever given that fewer government dollars are making it to charities these days.
Be sure to specifically identify the charity in your will, along with the dollar amount or a formula to calculate the dollar amount that you want donated.
If you fail to give these specifics, the donation might be considered that of your estate, and not a gift from you personally in your year of death.
5. Make a gift on-line.
Are you a procrastinator who still hopes to give to charity by year-end to save tax for this year? No problem. Consider visiting http://www.canadahelps.org and donate on-line.
All charities registered by the Canada Customs and Revenue Agency are listed on this non-profit site. I made a donation with my credit card to my local church through this site last year, received my donation receipt by e-mail a few seconds later, and my church received my donation in a timely manner.
Tim Cestnick, CA, CFP, TEP is author of The Tax Freedom Zone and Winning the Tax Game 2003. He is managing director, Tax Smart Services, at AIC Ltd.
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