When writing a will, many people designate part of their estate to a charity like Mill Woods United Church.
A bequest is a gift made in the “Last Will and Testament” of an individual. Bequests are the most common type of planned gift accounting for about 80% of all planned giving in Canada.
Upon death, your estate is entitled to a donation receipt for the full value of your bequest gift, which could mean a significant tax credit on your final tax return.
When you make a bequest to the church, your estate is eligible to receive a donation receipt for the full value of your bequest. The executor for your estate can then claim a tax credit for up to 100% of the net income on your final tax return. Any unused credits can be applied against your previous year’s income, again up to 100% of your net income. This means that you can make a significant charitable gift, and your estate and heirs reap the tax benefits of your generosity
- Connie L, a widow, left $100,000 to the church and the remainder of her estate to her two children. Connie had remaining RIF with $300,000 that became taxable income in the year of Connie’s death. In Connie’s case, the entire bequest amount was applied against her taxable income, which was over $100,000. The combined tax credit is 50 percent, which resulted in tax savings of $50,000. If she had left the $100,000 to her children instead of giving it to the church, taxes would have consumed $45,000 tax, leaving the children with only $55,000, just $5,000 more than they would have received if their mother had not made her charitable bequest. In effect, $2,500 less for each of Connie’s two children meant $100,000 available for the church’s ministry! (Special note: Tax credits vary depending on the province of residence. The range was 43.5% to 50% and are 50% in Alberta)
- Mrs. X died on February 15th. In her will, she left the church a general bequest of $100,000. Since she died so early in the year, her taxable income in the year of death was only $15,000. Her net income for the previous year was $50,000 of which she gave $5,000 to the church and to other charities. In Mrs. X’s final tax return, the executor can only claim $15,000 of the $100,000 donation receipt. The executor can then amend Mrs. X’s previous year’s tax return and claim the tax credit on an additional $45,000 in donations. Since the 100% donation limit was reached in both years, however, there is $40,000 worth of donations ($100,000 – $15,000 – $45,000 = $40,000) that cannot be claimed.
As can be seen from these examples the benefit of giving through a bequest is dependent on many factors and it is very important to involve your financial adviser to determine of this type of donation is right for you and your circumstances. A change to your last will and testament will be required to make a bequest.
- Contact the United Church of Canada Foundation for basic information on how to make a bequest
- Talk to a financial adviser
- Talk to a lawyer