Charitable bequests

By  Amanda J. Stacey, Catholic Register Special
  • November 3, 2013

A charitable bequest is, in its simplest form, a gift made to a charity after the death of an individual from their estate.

Bequests are set out in an individual’s Will, providing direction as to how their assets should be dealt with and distributed upon their death. The moral and social advantages of donating to charity are obvious. There are also attractive tax benefits to be considered when making a bequest to charity. Careful attention must be paid to the language used, especially with respect to the nature of the bequest and the recipient charity.

General and Specific Bequests
A bequest is a gift made to charity from your estate of either cash or a specific piece of property. A general bequest is generally a gift of a specific dollar amount from your estate. This type of bequest is also called a legacy.

A specific bequest is a gift of a specific property that is not cash. When you make a gift to charity, for income tax purposes, you are deemed to have disposed of your property for the fair market value of the property on the date of your gift (which is the date of your death). This may trigger a capital gain, which is subject to tax in most cases. However, because you can claim a charitable tax credit for the fair market value of your gift, you can partially offset any capital gain you incur.

Below is a brief description of some of the more common types of general and specific bequests.

Cash: A gift of cash is the simplest and most straightforward type of bequest. In addition to the benefit of convenience for the estate trustee and the recipient charity, a charitable tax receipt will be issued to the estate for the cash amount of the gift. A gift of cash is not subject to capital gains tax.

Personal Property: Any type of personal property can be donated to charity in the form of a bequest. Gifts of art, antiques, furniture and jewellery are often made to charities. These types of bequests may be subject to capital gains tax if they have appreciated in value since they were first purchased.

Publicly Traded Securities: A bequest of publicly traded securities (i.e. shares) is a common form of specific bequest made to charities. Although when you make a gift of shares, you will be deemed to have disposed of your shares for fair market value, because of special rules in the Income Tax Act, this capital gain will not be taxed. You will receive a charitable tax receipt for the fair market value of your shares.

Real Estate: Real estate is another common type of asset that can be donated to charity. It is important to note that where the property you donate is not eligible for the principal residence exemption, the capital gain realized on the disposition will be fully taxable. You will receive a charitable tax receipt for the fair market value of your property on death, which can help to offset any capital gains tax.

Where you would like to make a gift of property other than cash to charity, it is a good idea to speak with a representative of your favourite charity to ensure the gift is something the charity either really needs or has the ability to sell after they receive it.

Residuary Bequests
A gift of residue is a gift of a percentage of (or all of) the residue of an individual’s estate that is paid out of the assets remaining in the estate after all debts, taxes and other bequests have been paid. This type of gift takes longer to pay to the charity as it is necessary for the estate administration to be complete before the gift can be made; however, a gift of residue is a potentially larger gift than a bequest. A charitable tax receipt will be issued by the charity for the value of the residue received.

Restricted Gifts
Whether you make a general, specific or residuary bequest, it is possible to attach conditions or purposes to your gift. You can specify, directly in your Will, how you would like the charity to use your gift. It is recommended that you speak with a representative of your favourite charity to ensure that they can use your gift according to the conditions that you intend to attach to the gift. As well, you may want to consider including language with respect to this type of gift that will allow the charity to use it for another purpose if the purpose you have indicated is not possible for the charity to fulfill.

It is important to seek professional advice when considering a bequest to charity so that you can receive advice on the various tax implications of the type of bequest you are considering.

(Stacey is a partner in the Private Client Services and Charity and Not-for-Profit groups at Miller Thomson LLP.)

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