This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.
Making a gift to charity in your will can leave a lasting legacy. When you have more than enough for your family, or you want to make a gift without impacting your finances during your lifetime, consider making a gift in your will.
How do you make a charitable gift by will?
When making a will, ask your lawyer to include a gift to a charity. The gift can be a specific amount of cash, or a fraction of your estate before or after other gifts are made. You can also make a gift “in kind” of securities, real estate, insurance, art or other property. If you already have a will, ask your lawyer to revise your will or prepare a codicil to make the gift. You can also designate a charity as beneficiary of your RRSP or RRIF, or name them as beneficiary of your life insurance.
Benefits of charitable bequests
Like gifts made during your lifetime, charitable gifts made by will, by RRSP/RRIF designation or by naming a charity as the beneficiary of your life insurance can result in charitable donation tax credits. Currently, Manitobans benefit from combined federal and provincial tax credits of approximately 25.8% of the first $200 donated, and 46.4% of any amounts above $200. The 2016 budget includes additional credits for donors earning more than $200,000 annually to offset the higher rates of tax. Donation credits can shelter 100% of a deceased’s income in the year of death and the preceding year.
New rules in the Income Tax Act (Canada) provide for additional flexibility for the use of charitable donation credits for gifts made by will. For deaths after 2015, an executor may designate gifts completed within 36 months of death to have been made by the estate, in the year of the gift or any previous year of the estate, or to have been made by the deceased, in the year of death or the preceding year.
There are additional tax benefits of gifting qualifying publicly-traded securities or environmentally-sensitive lands to charity. When such assets are donated directly (rather than selling them and donating the sale proceeds), a charitable donation receipt can be issued for the fair market value at the time the gift is made and, in addition, no tax is payable on any accrued capital gains.
Important things to remember
- In order to receive favourable tax treatment, a donation must qualify as a “gift.” For example, giving discretion to your executor about the amount of the gift or whether a gift is made will not qualify.
- Ensure that your gift is being made to a registered charity or other “qualified donee.” Non-profit groups not registered as charities cannot issue official donation receipts.
- Find the correct name and business number of the organization you name in your will. The Charities Directorate of the Canada Revenue Agency has lists of registered charities and qualified donees on its website.
- If you want to make a gift “in kind,” or to restrict or direct how your gift is used, review any gift acceptance policies of the charity, or contact the charity to confirm that they will accept the gift and/or the restriction or direction. Charities may not accept certain properties, or may not accept gifts with restrictions, due to possible liabilities or administrative burdens.
- Provide for contingencies in your will in case the charity you choose has closed its doors. You could name an alternate charity, or give your executor discretion to make the gift to a similar charity.
Careful planning and drafting of a will including charitable gifts can result in tax advantages, ultimately allowing for a larger, more impactful charitable gift, without a corresponding reduction to the amounts available for your other beneficiaries. For significant gifts, a professional gift planner and lawyer are invaluable in ensuring that you leave a lasting legacy.
This article was originally published in the Thursday, April 21, 2016, Winnipeg Free Press Leave a Legacy supplement.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
Florence Carey is a partner at Aikins Law and a key contact for the Charities and Not-For-Profits and the Tax practice groups.