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Tax Effective Charitable Giving

The Wealth Cycle

Successful entrepreneurs evolve through four stages of the Wealth Cycle, comprised of — Wealth Creation,Wealth Management,Wealth Dispersion and Wealth Transfer.

During the first two stages, most of the time and energy is devoted to the accumulation and preservation of capital. Wealth Dispersion is effectively the payday for past effort, and then there is Wealth Transfer is the subject matter of business succession.

It can be particularly vexing both from a financial and social perspective. Activities that consumed a lot of time and provided social stature during the accumulation and preservation cycles are no longer necessary. There is also the taxes arising from the Wealth Transfer.

Proper planning involving charitable giving and private foundations can help to resolve these concerns. The Family Foundation becomes a source of rewarding activity in the social context and the funding of the Foundation can provide significant tax sheltering to the entrepreneur and successor family members.

How it works

• Identify eligible assets and quantify the capital gains tax on death
• Establish the Family Foundation and obtain charitable registration
• Provide for transfer of appreciated assets such as private company shares to the Family Foundation by will
• Provide necessary funding to redeem the shares by acquiring a life policy in the private company
• The private company will redeem the shares using the funds from the life insurance policy
• The Family Foundation issues a charitable donation receipt reducing or eliminating the capital gains tax
• The life insurance mortality benefit is added to the private company capital dividend account and can be distributed to the surviving family members as tax free capital dividends