A charitable bequest is a distribution from your estate to a charitable organization through your last will and testament. There are different kinds of bequests. Examples include:
General Bequests: left to certain causes from the general value of the estate. These are made by a specific designation: a dollar amount, a certain asset or a percentage.
Specific Bequests: a particular item or property is left for a designated purpose. (i.e., a dollar amount to be used for a specific ministry or to help restore a church)
Residual Bequests: leave the residue portion of your estate to the charity after other items of the will have been taken care of.
Contingency Bequests: leave a portion of your estate to the charity if your other beneficiaries do not survive you.
This is a popular way to make a planned gift. It is easy to do and the financial incentives are substantial. In some ways, donating securities can be smarter than donating cash.
Here’s a sample scenario: you wish to donate $50,000 to the Church through the parish, the diocese or one of the foundations featured in this issue. Let’s assume you bought $25,000 in stocks a decade or two ago and they are now worth $50,000.
Option A: Sell the stock and donate the cash. If you simply sell the shares, you have a capital gain of $25,000. There is a capital gains tax that must be paid (up to 46%), that would result in a tax savings of around $11,500. Net cost to donate $50,000: $38,500.
Option B: Donate the stock.You get to claim the entire $50,000 as a tax deduction and you don’t have to pay any capital gains tax. The tax savings would be around $23,000. Net cost to donate $50,000: $27,000.
You can even donate your income taxes! You can give up to 100% of your income tax when you die. If you don’t choose where it goes, the government will decide for you. For the year a person dies and the year before that, this limit is 100 percent of the person’s net income
A detailed explanation of the benefits of donating securities (provided by BMO Nesbitt Burns) is available here. Also available is a simple, one-page form you can complete if you wish to make a charitable donation of shares.
Donating a life insurance policy is another, though less common option. Depending on how it is structures, you can receive tax savings while you are still alive and kicking and making payments. There are two main options when considering making a planned gift of life insurance:
Option A: Assign the policy to the charity as owner and beneficiary. The annual premiums qualify as a tax-deductible donation on your annual income tax return. You can also transfer ownership and beneficiary of an already existing policy.
Option B: You retain the policy and name the charity as the beneficiary While you can’t receive tax deductions from premiums, the charity will issue a tax receipt from the amount it receives from the policy upon death. This could help with capital gains, RRSP and income taxes.