Answering Your Questions About Estate Planning

Friday, October 27, 2023

October is Financial Estate Planning Month in Canada. Estate planning is essential to ensure a secure future for your family and assets. While the idea of an “estate” might make you think of high value assets such as vacation homes and luxury cars, in reality, almost everyone has an estate. Your estate is anything you own, including your home, investments and assets, life insurance and personal possessions. Estate planning means determining how to distribute your assets after death.

Planning ahead should prevent your family members from having to make tough decisions in the future and will ensure a smooth transition for your loved ones.

Why should I consider giving a gift to a charitable organization in my estate planning?

Including a charitable gift in your estate planning can be a thoughtful and impactful way to leave a legacy and support causes or organizations that are important to you. Here are a few reasons why you might consider gifting to a charitable organization in your estate planning:

• Philanthropic impact: By designating a portion of your estate to a charitable organization, you can support a cause you believe in and make a positive impact on society, community, or the environment.
• Legacy and memory: It allows you to leave a legacy by supporting a cause or organization that reflects your values, passions, and beliefs. Your name can be associated with the positive change or work that the charitable organization does.
• Tax benefits: Charitable gifts made through your estate can offer tax advantages, potentially reducing the overall tax burden on your estate. Donations to charitable organizations may be tax-deductible, benefiting both your estate and the organization.
• Alignment with family values: If philanthropy is a value you wish to instill in your family, including charitable giving in your estate plan can demonstrate and pass down this value to future generations.

It is important to consult with legal and financial professionals to ensure that your estate plan is structured in the most effective and tax-efficient manner for achieving your philanthropic goals.

What is a charitable bequest?

A charitable bequest is a provision in a person’s will that specifies a gift or donation to a charitable organization. It is a way for individuals to support charitable causes and organizations they care about, leaving a lasting impact on society and contributing to the betterment of the community.

A charitable bequest is outlined in a person’s will. The will states the amount or percentage of the estate that will be donated to a specific charity or charities. Bequests can include various types of assets, such as cash, stocks, registered investments, life insurance, real estate, personal property, or a portion of the estate. The bequest can outline specific directions for the use of the gift, such as how the funds should be used or whether they are intended for a particular project or program within the charitable organization. Charitable bequests can provide tax benefits to the estate. Under Canadian income tax rules, a donation tax credit may be claimed for qualifying charitable gifts that are made by an individual either through their will, by their estate, or by direct designation in a registered investment or life insurance.

What is the difference between a residuary gift and a contingent gift in a will?

In a will, both residuary gifts and contingent gifts are ways to distribute assets to specific beneficiaries, but they differ based on how and when the distributions occur, primarily contingent upon certain conditions or circumstances.

Residuary Gift: A residuary gift is a provision in a will that designates the distribution of any remaining assets and property that have not been specifically gifted or devised to other beneficiaries in the will. It is distributed after all specific gifts, bequests, and expenses have been satisfied. The residuary estate typically comprises what is left after settling debts, taxes, administrative costs, and other bequests outlined in the will.

Contingent Gift: A contingent gift is a provision in a will that specifies a gift to a particular beneficiary, but this gift is contingent upon a certain condition or circumstance being met. The condition might be the occurrence of a specific event, such as alternate beneficiary surviving the person creating the will or reaching a certain age. If the specified condition is not met, the contingent gift may not take effect, and the assets or property designated for the contingent beneficiary would pass to an alternate beneficiary or follow the residuary provisions in the will.

Should I notify the charity that I intend to include a gift in my will?

Yes, it is a good idea to notify the charity if you intend to include a gift for them in your will. Here are some reasons why:

1. Verification and acknowledgment: By notifying the charity, you can ensure that your intentions are understood and documented accurately. The charity can acknowledge and confirm their willingness to accept the gift, which can help avoid any complications later on.

2. Planning and coordination: Alerting the charity allows them to plan for the future and ensures that your gift aligns with their mission and programs. They can also provide information on how your donation can best support their work.

3. Recognition and gratitude: Many charities appreciate the opportunity to express gratitude and recognize donors during their lifetime. Knowing about your planned gift allows them to thank you and potentially involve you in their donor recognition programs.

Written in consultation with Leilani Kagan, a partner in the Business Law Group (Tax) at Thompson Dorfman Sweatman LLP in Winnipeg, MB. Leilani’s practice includes business succession planning, estate planning and trusts, as well as advisory and compliance work with charities and non-profit organizations, including private and public foundations.