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Cut tax burden and leave a legacy with a donor-advised fund

As I ready myself to prepare my 2005 tax return, I've been gathering my donation receipts together. But there's one noticeably absent. My contribution to Canadian wildlife. You see, I lost no fewer than 107 golf balls last summer, and I just know that somewhere, out there in the wilderness, a squirrel has figured out what to do with those golf balls -- reaping the benefits of my uncontrollable slice. I think I deserve some tax relief for the thousands of golf balls I've lost since I started golfing 27 years ago. But I digress.

If the truth be known, a greater number of Canadians are preparing to make larger gifts (other than golf balls) to charity than ever before. I'm starting to see that, as baby boomers age, they're more concerned about their estate planning -- and charitable giving is an important part of it. In fact, I can already see the next great trend in charitable giving taking shape. I'm talking about donor-advised funds.

In a nutshell, donor-advised funds are the most efficient way for donors to create a legacy of charitable giving that can last for many generations. How does it work? It involves making a donation to a public foundation. You see, many public foundations, which are registered charities, will allow you to make donations to the foundation with the purpose of having that money accumulate in a "fund" over a period of years. Think of this fund as your own personal family foundation.

Each year, you can direct which charities should receive the income earned on your fund (hence the term "donor-advised"). You can also distribute all or part of the capital (the amount originally donated to the foundation) to those charities you believe in, if you'd like.

Setting up a donor-advised fund with a public foundation is, in many ways, like setting up your own private foundation. In fact, when you set up your donor-advised fund, you'll be asked to give it a name, such as "The Jones Family Foundation."

There are a number of benefits of creating your own donor-advised fund. Here are a few:

Enjoy immediate tax savings. Any donation to the public foundation will give rise to a donation receipt, which will provide you with a tax credit (or a deduction for corporations) and tax savings.

Create a legacy of giving. By setting up your own family "foundation," your charitable giving can involve your children. Once you're gone, your kids can become the advisers to the fund, making decisions about which charities should benefit annually.

Separate tax planning and giving. A donor-advised fund allows you to make a gift to the foundation, enjoy the tax savings, but make a decision later about what charities should ultimately benefit. This can result in more meaningful and carefully considered gifts.

Tax-free growth. The growth of the investments inside the foundation will be tax-free, potentially allowing you to create more assets to ultimately benefit charity.

Simplicity. Sure, you could create your own private foundation, but a donor-advised fund works much the same way without having to worry about accounting and annual government filings.

There are a number of public foundations that offer donor-advised funds. Most have some minimum donation required for donor-advised funds. If the health of children is important to you, the Sick Kids Charitable Giving Fund was launched this week (call 416-813-2931 or e-mail givingfund@sickkidsfoundation.com for more information), or check out your local community foundation, which generally offers donor-advised funds, by visiting cfc-fcc.ca. Some financial institutions, such as Toronto-Dominion Bank, also offer donor-advised funds through their foundations.

Tim Cestnick is a principal with WaterStreet Group Inc. and author of Winning the Tax Game among other titles.

tcestnick@waterstreet.ca



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