Giving a Stripped Bond

image001

Perhaps you’ve never even heard of stripped bonds. Perhaps you’re already using them as a vehicle for your own investments. In either case, they may be “just the right way” for you to make a gift to the Diocese of Edmonton, to your parish, General Synod, The Anglican Foundation, or The Primate’s World Relief and Development Fund.

What is a Stripped Bond?

For many years, governments and corporations have borrowed money from individuals by issuing bonds. As the lender, you purchase the bond at its “face value” and then receive interest at a fixed percentage until the bond “matures” and the face amount is refunded to you. (Bonds may also be bought and sold on the “secondary market” at current market prices; in that case you receive the stated interest for whatever time you own the bond.)

A stripped (or zero coupon) bond is a financial product sold by bond and securities dealers. Basically, it is a corporate or government bond from which the interest coupons have been stripped away. Instead of paying income to the holder, it is sold for much less than its future redemption value. It will often double or triple in value before it matures.

An individual who buys and holds a stripped bond must pay income tax each year on the growth in the bond’s value. However, when the bond is purchased and donated to the Church, neither the buyer nor the Church is taxed, so its value increases tax–free.

For Example

Robert B. wishes to establish a named endowment with the Diocese of Edmonton in memory of his wife. He purchases, in the Diocese’s name, a stripped bond for $15,000 which will mature in 10 years at a face value of $30,000. He receives a donation receipt for the full cost of the bond and, assuming a combined tax credit of 50%, realizes tax savings of $7,500. He has made a future gift of $30,000 to the Diocese of Edmonton at a net cost of only $7,500.

Selecting a Bond to Fit Your Goal

The cost of the stripped bond you purchase for the Diocese of Edmonton (or your parish, or another Anglican entity) will depend on the years to maturity and the amount you want the Church to receive. Bond prices and yields fluctuate frequently. Contact an investment dealer to obtain rates.

If you intend to use a stripped bond to establish a named endowment, as Robert B. did in the example above, its present value must equal or exceed the established minimum for a new named fund. For a gift to a previously established general or named endowment fund, a bond of any size may be used.

Purchasing a Stripped Bond

Any investment dealer can provide a stripped bond, though you may wish to obtain quotations from more than one to ensure that you get the best price. You may consult your own dealer or ask us for suggestions.

If you have an account with an investment dealer, you may use it to make your purchase and instruct the dealer to register the bond in the name of the Diocese of Edmonton (or another Anglican entity) and deliver it to us. Alternatively, you may give us a cheque for the required amount and we will purchase the bond. The settlement contract with the investment dealer or your cheque to the diocese will be the basis of your tax receipt.

We’re Here to Help

If you would like our help in arranging your gift, please feel free to call on us. We also recommend that you review this information with your financial advisor to determine its appropriateness to your situation.

If you would like more information, in confidence and without obligation, please complete and return the Request for Planned Giving Information form.

The information on this webpage does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Planned Giving Office encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action. The examples given above reflect rates at the time of writing and are subject to change.