The cornerstone of your estate plan is your Last Will and Testament, which directs how you want to distribute your assets after death. A properly prepared Will drawn up by a lawyer enables you to exercise your “will power” and ensures that your wishes for your family and other beneficiaries are accomplished. Without a legal Will in place, it is the government who decides how your estate will be distributed. If you want to make a charitable bequest, it is essential for you to have a legal Will in place. Through your Will, you can ensure that the ministries and causes you have supported during your lifetime are funded for generations to come.
There are many ways to make a charitable bequest that will best suit your personal philanthropic goals and financial situation.
Types of Bequests
General bequest: Directs that your charitable beneficiary will receive a designated sum (e.g., $50,000).
Specific Bequest: Directs that your charitable beneficiary will receive a specific piece of property (e.g., a gift of stock or real estate).
Percentage Bequest: States that your charitable beneficiary will receive a predetermined percentage of your estate (e.g., 10%), keeping your gift in line with the value of your assets as they change.
Residual Bequest: Designates that your charitable beneficiary receives all or a portion of whatever remains in your estate after all named beneficiaries, debts and administrative fees for settling the estate have been paid.
Contingent Bequest: Allows you to make a primary bequest for a relative (e.g., spouse or child) with the contingency that, if that relative should predecease you, the bequest would pass to your charitable beneficiary instead.
Adding a Codicil to Your Will
If you already have a Will in place, you do not necessarily have to change your entire Will in order to add your church or other registered charity as a beneficiary. Often all you need to do is add a clause or codicil to your existing Will, stating your intentions—a simpler and less expensive process. It is important to note, however, that the codicil should be as carefully written as your original Will, preferably by a trained person, and, like your Will, needs to be properly executed in front of two witnesses.
Tax Benefits and Other Considerations
- When you make a bequest to your church or other charity, your estate is eligible to receive a donation tax receipt for the full value of your bequest. The executor for your estate can then claim a tax credit for up to 100% of your net income in your final tax return. Any unused credits can be applied against your previous year’s income, again claiming up to 100% of net income.
- If you have no heirs to benefit from the use of donation tax credits, a charitable bequest is unlikely to be the most tax-smart way to give. Giving a portion of your assets to the church while you are living will enable you to maximize your tax benefits, meaning more money for you and/or for your church.
- If you make a designated bequest to a branch of the church for a specific area of ministry—be it in support of youth, refugees or other program area—make sure you give your beneficiary the authority to change the designation if the ministry you have stipulated becomes obsolete or no longer needs funding.