The Accidental Philanthropist® – Mark Halpern
By Mark Halpern, CFP, TEP, MFA-P
Imagine if you knew something that others didn’t know that could help them, their families and the causes they care about. How much you would want to share that information – but how hard would it be? Where would you start? Which people would you reach out to? What would you tell them to cut through the noise and make sure they understood how important your ideas were?
I feel like that most of the time because I have access to information that every professional advisor, charity and Canadian needs to know. I want to let everyone in on the many strategies available to save taxes while making a philanthropic difference. And, while it can be a challenge to keep making the effort to get the message out, I’m motivated to try my best to ensure as many people as possible understand the planning opportunities in this area.
But I can’t to it alone. I need help from Charities, Foundations and Non-Profits (and professional advisors) to help spread the news to benefit the organizations and their donors today.
The first step for charities is they need to identify major donors who are still donating with cheques or credit cards through a Corporation, Holding Company or Investment Company. It would also help to identify those who COULD give through a corporate entity but are instead still giving personally. Next step is to provide education to those donors on the tremendous cost-effective and tax-effective benefits of donating more strategically through our “Give & Get” strategy that will encourage even more generous donors once they learn how to maximize their generosity to family and charity, all by converting taxes into donations.
Here are a few recent examples of the work we’re doing that you can use as inspiration when talking to people with philanthropic aspirations.
Not long ago, we started working with a husband and wife whose ancestors began building the family’s wealth through a business founded six generations ago, back in the 1800s. They heard one of my webinars and reached out to explore what we could do to help them with legacy and estate planning. We explained the many ways individuals and corporations can turn taxes into charity, and this couple gravitated towards one particular area of opportunity.
The family had implemented an estate freeze, but they were missing three key bits of knowledge with the potential to elevate their legacy planning. First, they weren’t aware that they could donate private company shares (aka preferred shares). Second, they didn’t realize that, on death, charitable donations can be used to mitigate 100% of estate taxes in the year of death and the year prior to death. Third, they hadn’t considered how cost-effective it can be to incorporate life insurance strategically into an estate plan to turn taxes into an enduring legacy.
Putting these pieces together allowed the couple to take advantage of a new approach that fulfills their estate planning and philanthropic objectives – and it’s an approach even their family office wasn’t aware of. Now, they can share what they know with their other professional advisors and the three dozen family members in their generation. Satisfyingly, my team has succeeded in spreading the word a little bit more.
Another chance to share our philanthropic planning expertise came about after I participated in Dr. Yatin Chadha’s podcast, beyond MD, in August. In this podcast, Yatin, a local radiologist, provides financial literacy to medical professionals and their advisors. Following our episode, I was approached by a retired professional who had crystallized some of his corporation-held capital gains to take advantage of the one-half capital gains inclusion rate before it changed to two-thirds on June 25, 2024. The downside was that he now had a huge tax bill that would come due in April 2025.
When we met, he acknowledged he had never done any legacy planning – historically, he simply responded to specific requests from charities. However, he was interested in incorporating strategic philanthropy into his estate planning, especially when I pointed out that we could turn 100% of his capital gains tax into charity by moving some pieces around.
The strategy we implemented takes advantage of the fact that his corporation still has a large investment portfolio, with a lot of appreciated value – what we call being “pregnant” with capital gains. We recommended with his CPA that if we approximately double the tax bill with a donation of “in-kind” securities, he will not incur any capital gains taxes, and the full donation amount (including capital gains) can be deducted against other taxable income in the corporation. The icing on the cake is that the amount of the capital gains will be credited fully to the Capital Dividend Account (CDA) and can be withdrawn tax-free now or at some later date! So, beyond saving taxes now, we’ve created a tax-free pipeline to turn corporate dollars into personal dollars.
With the capital gains tax bill covered, we’re turning our attention to working with this client’s other professional advisors on additional ways to manage an estate tax bill estimated to be in the tens of millions of dollars. This will likely involve more tax-friendly donations to charity and the use of permanent life insurance to replace all those donations at a cost of pennies on the dollar or likely by using a financing strategy to create a cash-flow effective way of funding the insurance needed. It’s all about planning and moving the shells around to preserve family wealth and create a legacy that will hopefully endure for generations and make the world better by supporting important charitable cause they care about.
Here’s one last example of our work in the past few months. I was introduced to a family that made a fortune investing in real estate. Adult siblings are destined to inherit property valued at $500 million with a $20 million adjusted cost base – so, very pregnant with capital gains. Overall, the challenges include no wills, no shareholders agreements and no estate planning (including planning for U.S. estate tax) and a very large projected estate tax bill.
Interestingly, the siblings understand there’s a lot to get in order but, first and foremost, they want to focus exclusively on philanthropic planning. Those conversations will lead into the other areas, but they’re the starting point – the thin edge of the wedge around legacy and Strategic Philanthropy will create an opportunity to take care of other essential pieces of a comprehensive estate plan.
As we continue to spread the news about the tremendous benefits of strategic philanthropy, we’re making progress towards our three-part mission: to educate and inspire professional advisors and charities to incorporate Strategic Philanthropy Using Life Insurance into estate planning, to help people understand how insurance works in the HNW and charitable space and to create a national community of 100 professional advisors and charities that are each creating $10 million a year in donations – for a total of $1 billion a year. This is replicable each year and realistic. We already have around two dozen members with space for many more.
I’m driven to share information about how to make the most cost-effective and tax-effective gifts to charitable causes because it’s the right thing to do. It’s also too big a risk to ignore it. I encourage charitable foundations and professional advisors to reach out to my team to learn more about how our specialized expertise can support your efforts so that we all do good and do well together!
Mark Halpern, CFP, TEP, MFA-P, is a Certified Financial Planner, Trust & Estate Practitioner, Master Financial Advisor – Philanthropy. He heads the firm WEALTHinsurance and writes this regular column for Foundation Magazine.