What to watch for when Gifting by Will
Many Canadians choose to give to charity through a bequest. These gifts can be significant in value, so it is important that the bequest wording is clear. Why? Because there are a number of tax rules that must be considered when planning charitable gifts by Will.
According to Sandra Enticknap, LLB, Miller Thomson, LLP, it is important for professional advisors to work with their clients to determine where the donation tax credit is best utilized, in the terminal return or estate/trust return. The goal is to avoid having the tax liability in one tax return and the donation credit in the other or worse yet, not being able to use the donation tax credit in either return.
Many donors want the donation tax credit to be used in their terminal tax return, but in order to achieve this the gift must qualify as a gift by Will under the Income Tax Act. CRA’s rules on what will qualify as a gift by Will are strict. The Will must clearly provide for a donation of a specific property, a specific amount or a percentage of the residue. It must also be clear that the executors are required to make the gift; that the estate is able to complete the gift after payment of debts; and the gift is actually made. If a gift meets all these criteria, it will qualify as a gift by Will and the donation tax credit can only be claimed on the terminal return.
If the amount of the gift is left to the executor’s discretion, it will not qualify as a gift by Will. However, CRA has indicated that the gift will qualify under the following circumstances:
- where a defined amount is left to a number of charities but the executor has the discretion to set the allocation; or
- where a defined amount is left to charity but the executor has the discretion to select the charity; or
- where a defined amount is left to a private foundation to be established by the executor as instructed in the terms of the Will.
This does allow for final selection of charities or allocation of a specified amount among them by the executor after the donor’s death. It is also the CRA’s view that where an individual’s Will directs an executor to donate an amount to a charity to bring the amount of income tax liability on the deceased’s final return to zero, the donation will generally qualify as a gift by Will. However, a gift will not be a gift by Will if the executor has discretion as to the amount or discretion as to whether or not to make the gift.
The bottom line is that the wording of the Will is critical.
It is important that donors seek advice to ensure that their charitable objectives will be achieved once they have gone. For more detailed information on this topic please review the source article link below.Source: Maximizing Credits when Gifting by Will and Trusts, By Sandra Enticknap, LLB, Miller Thomson, LLP