Interview: How to make charitable giving part of your wealth plan (2021)

As the saying goes, “charity begins at home but should not end there.” The spirit of generosity is often passed on from parents to their children.

That’s a sentiment Malcolm Burrows, Head of Philanthropy Advisory Services at Scotia Wealth Management, can relate to. “It was kind of inevitable,” he says of his career choice. “My mother was in social services; my parents always volunteered and so I had a bit of idealism embedded in me early on.”

Burrows has worked in philanthropy for 31 years, spending 13 of them at three Toronto-based charities before moving to Scotia Wealth Management. He also contributed to the development of new charitable tax incentives, including the elimination of capital gains on gifts of public securities. He now leads a national team that manages over 200 private foundations and operates Aqueduct Foundation, one of Canada’s largest foundations as measured by assets and grants.

Burrows spoke with Perspectives about the pandemic’s impact on the charitable sector and how philanthropy can be integrated into wealth or financial planning. 

Most people make charitable donations of some kind. What’s the difference between ‘ordinary’ and ‘exceptional’ donations?

I use the analogy of two pockets. Ordinary donations, which most Canadians make annually, come from the cashflow pocket and are typically made from the heart with less thought given to tax incentives. Exceptional donations can also come from the heart but are usually a significant donation made from the asset/investment pocket, and thus occur just a few times during a lifetime. As a result, making an exceptional donation requires careful planning that addresses charitable goals, taxes, personal, and family needs. The most common exceptional donation is a gift by will from a person’s estate.

When should someone consider making an exceptional donation?

An exceptional donation is a personal act that is the result of altruism, values, circumstances and wealth. Our process is to work with clients to determine what they want to support and then address how to support it.  We always make sure clients have enough assets for their own wellbeing as well as that of their family, so it takes planning to figure out the best time and way to make an exceptional donation. Apart from generosity, the most common triggers for exceptional donations during life are tax events, such as the sale of a capital asset or a business. Another common scenario is estate planning.

Can you provide an example of an exceptional donation?

Recently we worked with a mother and her two adult children who made a wonderful “exceptional donation.” It all started with a nice problem. The mother and her late husband had bought a tech stock 20 years ago and it had appreciated significantly. She knew it was the right time to sell but was paralysed by the capital gains tax it would trigger. Fortunately, she is charitable and so she used this opportunity to make the largest donation of her life. The mother donated $300,000 to a land conservation charity near their cottage and sold the balance to help her children with home purchases.  The in-kind stock donation saved a rare wetland ecosystem, while also offsetting all taxes on the sale of the stock and helping the next generation become financially independent.   

How has the pandemic affected exceptional donations and wealth planning in general?

Last year was tough for charities. Many donors, however, increased their giving. Aqueduct Foundation, a charity with donor-advised funds managed by Scotiatrust, experienced a 23% increase in grants to charities. In total, Aqueduct granted $57 million in 2020. Our clients really stepped up to make a difference.

In 2021, we’ve seen some very significant exceptional donations to Aqueduct Foundation and other charities in the community. These are the outgrowth of estate planning, sale of major assets and rising stock and real estate values. A donor-advised fund mimics a private foundation in that the donor has a single place to put money and decide in the future what charities it will support, but without the cost and administrative work that goes into setting up and running a foundation.

What are some of Canada’s tax incentives that encourage donations of assets?

Canada’s tax system is one of the most supportive of charitable giving in the world. There’s a whole range of tax incentives introduced over the past 25 years that are designed to encourage Canadians to give. In Canada it is now possible to eliminate all taxes at death with an estate donation to charity.

One widely used strategy is to donate public securities you hold that have substantially increased in value. This provides two tax savings: 1) the tax credit that arises from a donation receipt and can offset tax to the highest marginal rate; 2) no capital gains on the disposition of the securities, which amount to savings of up to 25%.

There are also valuable incentives for gifts of RRIFs and RRSPs, life insurance, estate assets and estate donations, and even for ecologically sensitive land and cultural property. It is also possible to combine lifetime and estate donations to maximize tax benefits. We consider all these factors when we work with clients to plan their giving.

What are the benefits of setting up a family foundation, either as a donor-advised fund or private foundation?

A family foundation provides a vehicle for a person to establish a philanthropic legacy. In essence, it is a single “pot” to put donations that can support many charities in the future with input from the donor or donor’s family. For people who want to make exceptional donations, it can be challenging to figure out how much to give and to which charities at the time the donation is made. A foundation helps separate the donation planning process from the subsequent distribution or grants to charity. As well, the larger the amount of the donation, the more complex the process is in terms of both wealth planning and the donation.

Aqueduct Foundation offers donor-advised funds that are a type of personal foundation. Aqueduct provides the benefits of a standalone private foundation but with a much higher level of professional support and no administrative burden to the donors. Aqueduct’s basic promise to donors is they can grant to any charity, at any time and in any amount. We work exclusively with donors who make exceptional donations, either during their lifetime or as part of their estate plan. They want to focus on philanthropy, not administration.  An effective philanthropic legacy needs planning and time to create.