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Newsletter | Legacy Giving
EXPERT ADVICE: How to build your legacy by investing imaginatively during uncertain periods

For certain donors, the coronavirus crisis brings two seemingly incompatible goals into sharp relief: funding a cause that they believe in and maintaining control over the family’s financial capital. Establishing a virtual endowment can reconcile these goals.

There may be many reasons why you may be considering leaving a gift to an organization like Weizmann Canada. Some common ones include:

  • Leave a legacy | Direct that legacy and include your family in planning
  • Have a big impact relative to your current giving capacity | A relatively small portion of one’s estate can still be meaningful in absolute terms
  • Maintain control of capital during your lifetime | Margin of safety and the ability to still compound wealth
  • Achieve tax efficiencies | Capitalize on planning opportunities
  • Receive recognition | Now and in the future

The virtual endowment is, in simple terms, when a donor commits to paying a fixed amount every year, equal to the distribution from Weizmann’s endowed funds (currently 5 per cent), until their estate transfers the capital component. One might, but need not, prefund the capital “liability” through an existing or new life insurance policy.

Here is an iteration of a $1M virtual endowment strategy for John*, a 55-year old private equity investor:

Annual donation commitment Annual life insurance premium Pre-tax annual cost After-tax annual cost
$50,000 $17,500 $67,500 $33,750

 

If John is a successful private equity investor, one assumes that his annual after-tax returns exceed 3.375 per cent and he may, therefore, prefer to maintain control of the $1M in capital. The virtual endowment enables him to achieve the following:

    • Have an immediate impact at the Weizmann Institute,
    • Continue to provide funds to Weizmann in perpetuity, creating a legacy for his family,
    • Receive recognition for his gift both now and for posterity, and,
    • Continue to compound his personal wealth.
  • John might work with his advisors and the team at Weizmann Canada to further disinherit the Canada Revenue Agency in favour of science for the benefit of humanity. For instance, depending on his circumstances, he might choose to fund his annual commitments through gifts of appreciated securities and/or using flow-through shares. These approaches are not mutually exclusive, however, should be reviewed with your family’s tax and legal advisors.

    Chaim Weizmann, founder of the Weizmann Institute of Science, invested imaginatively during periods that one might charitably call uncertain. A virtual endowment affords donors like you the opportunity to do just that.

    Zachary Schwartz is President of ZSC Inc. and works at a private investment office. Zach also serves as a member of the Weizmann Canada Board of Directors and as Co-Chair of the Weizmann League Toronto (Weizmann’s young professionals’ group).

    Leave a legacy, change the world. Make Weizmann Canada part of your estate plans to make the future brighter for all of humanity. Learn more.

    *Notes and assumptions:

        • For simplicity’s sake, the example assumes that a donor’s after-tax donation cost is equal to 50 per cent of the gift. This will vary based on individual circumstances.
        • The example assumes that the donor is in standard health and chooses to minimum-fund a universal life policy. The premium amount is an approximation. It assumes that Weizmann is the owner and beneficiary of the policy. Other policy structures and/or gifts of existing policies may be better suited to certain donors.
        • Donors can choose to “pay off” their endowment commitment at any point.
        • The distribution from Weizmann’s endowed funds is liable to change.
        • Donors should consult their tax and legal advisors before making a gift.
        • Weizmann’s endowed funds are generally US$-denominated. Weizmann Canada’s team can provide further guidance.
        • This article should not be construed as tax or legal advice.
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