Bequests in Wills are the largest source of charitable giving. Bequests have continued in growing popularity because:
1. People have more money than they need to adequately provide for their spouse and children;
2. People are recognizing the urgent need in organizations providing health care, education and social services, as government funding cuts continue;
3. People want to help and want to leave a legacy to their community;
4. Some people appreciate the tax break that is available for bequests made in Wills.
SPECIFYING THE BENEFICARY
If you choose to make a bequest in your Will to a charitable organization, it is very important that you correctly identify the charitable organization intended to be benefitted. This can be done by contacting the charitable organization and obtaining the correct legal name. You may also wish to specify whether the bequest is to go towards a special fund or to be applied for specific purposes. This is best accomplished in consultation with the charitable organization in order that the best use can be made of your money in conjunction with the needs of the organization.
DETERMINING THE AMOUNT OF THE BEQUEST
Bequests can be made either in specified dollar amounts or as a percentage of the residue of your Estate. The benefit of a specific dollar amount is that the charity does not need to approve the executor’s accounts at the time the estate is wound up. However, if you wish to make a large gift to a charity and you are not sure as to the extent of your Estate at the time of your death, or if the charity is intended to be the general residual beneficiary, a residue gift is appropriate.
THE TAX BENEFIT
A charitable bequest in a Will, provided it is worded properly, will be applied to 100% of the deceased’s income in the year of death and to 100% of the income in the year immediately preceding death. A large charitable gift in a Will can therefore have the effect of canceling out any income tax which would otherwise have been payable as a result of the death.
In order for a gift to be considered to have been made by the Will (and therefore deductible in the year of death and the immediately preceding year) the wording of the Will has to clearly state that the deceased intended to make a donation to specific registered charities, that is, one cannot leave it in the executor’s discretion as to which charities to benefit. If the gift is a portion of the residue of the Estate, there cannot be discretion in the executor as to capital encroachments which would make the amount of the residual Estate uncertain. If the discretion to encroach is there or if the executor has discretion as to which charities to benefit, the gift will be considered to be made by the Estate and therefore the tax receipt would only apply to income earned by the Estate after death rather than income earned by the taxpayer in the year of death and the immediately preceding year. This could have a serious negative tax consequence for Estates which have high income in the year of death and which do not have sufficient income accrued after the date of death and prior to the Estate being wound up.
PROFESSIONAL ADVICE
It is best to get professional advice with respect to the charitable gift in order that you ensure that the gift goes to the intended beneficiary, without undue interference by any party, and to ensure that the maximum tax advantage is available to your Estate from the gift being made. It is also advisable to consult with the charity that is intended to be the beneficiary of the bequest to ensure that your gift will be used as effectively as possible.
This article was prepared by Theresa Arsenault of Pushor Mitchell LLP of Kelowna, B.C. This article is not to be taken as legal advice and readers with any particular requirements should seek legal advice. Any questions can be directed to the writer at (250) 869-1110 or by e-mail at [email protected].
