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Financial planning tips

April 17, 2017

Planned giving: Creating an educational endowment

Wondering how to celebrate your family’s success and give something back to your adopted homeland? Think about an educational endowment.

If you’re a successful immigrant in Canada, you didn’t get where you are today without years of hard work, determination and planning. Now you may be considering what sort of legacy you’ll leave for your family and the country that you’ve come to call home. If you feel strongly about the importance of education, and believe your own family has the resources to continue to flourish after you’re gone, an educational endowment could be the answer.

An endowment can extend your goodwill and impact across your community – and beyond – by assisting students with their post-secondary studies. Think of it as an opportunity to live out the values you’ve cherished throughout your life’s journey and to give back to your adopted country, while also potentially reaping tax and estate-planning benefits.

What is an educational endowment?

As the University of British Columbia explains, an educational endowment is a planned financial gift to a post-secondary institution, often created as a memorial tribute in an individual or family’s name. The principal (the amount you donate) is protected and invested, and the income or interest generated is distributed according to the terms you establish. The school administers the endowment and chooses the beneficiaries. The funds can be used for your choice of educational support: scholarships, bursaries, prizes, fellowships, research, student programs, to name a few.

How do you fund an educational endowment?

There are many ways to fund an educational endowment: with the proceeds from a life insurance policy; with funds from a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF); from donated securities (stocks and bonds); or as a bequest in your will. Each of these methods entails particular legal requirements and tax implications. It’s a good idea to seek independent legal and tax advice to determine which option or combination of options is best suited to your personal financial circumstances as well as the goals you have for your endowment.

How do you distribute the funds?

Once you’ve decided to create an educational endowment, the next step is to choose how you want the funds to be distributed. Here, as with the funding, there is room for personalization.

For example, if you’d like to support the individual efforts of certain students, a scholarship can provide a non-repayable reward that recognizes academic excellence at the undergraduate or graduate level. A bursary is also non-repayable and is distributed based on financial need, among other criteria, and may be offered to undergraduate or graduate students. While also non-repayable, a fellowship more often refers to short-term or temporary funding of study at the graduate level.

Another option is to offer a gift to build, expand or renovate the public spaces of a post-secondary institution. As an added appreciation of your generosity, a new building or wing will sometimes bear the name of the family who helped fund the construction.

Weighing the options

Choosing how best to honour your family and heritage through planned giving is a very personal decision. That’s why it’s so important to get independent advice: not only to make certain you’re adequately prepared for the financial and tax implications, but also to ensure your money is doing the most good it can.

A financial planner can work with your independent tax professional (such as an accountant) to help provide guidance on a variety of wealth solutions, including the financial and taxation implications of planned giving. A financial planner can describe the alternatives, help you explore your options and make recommendations based on your wishes. You can work with a financial planner who can communicate in your family’s first language, making it easier to include family members who may not be fluent in English in the discussions.

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