Charitable Legacy Planning: Making Donations in a Will

By Paula Bosenberg at Horne Coupar LLP

As part of our estate planning legal practice, we often have the opportunity to advise clients with respect to philanthropic gifts they wish to make following death.

The reasons for making such gifts are varied. Generally, will-makers feel strongly about a particular cause, and wish to donate remaining assets to support the objectives of that cause.

The availability of donation tax credits to apply to date of death taxes is also a motivating factor for will-makers and planning in this respect can reduce the overall tax burden of an estate. A will-maker’s executor may claim eligible amounts of donations in the year of death, limited to the lesser of 100% of the deceased will-maker’s net income, and the eligible amount of the donations made in the year of death, plus any unclaimed portion of eligible donation amounts made up to five years before death. Any excess eligible donations may also be claimed on an income tax return for the previous year (up to 100 of the deceased will-maker’s net income for that year). Furthermore, an estate, whether it is a graduated rate estate or not, may claim a charitable donations tax credit for an eligible donation in the year in which the donation is made or in any of the five following years (or 10 years for a gift of ecologically sensitive land made after February 10, 2014).

Charitable gifts in a will may be made in a number of ways, which include outright legacies or bequests, a gift of all or part of the residue of an estate, a contingent gift in the event of a beneficiary predeceasing the will-maker, a gift that is subject to an intervening life interest, and a gift of a discretionary beneficial interest in a testamentary trust.

In addition, a will-maker may make a designation donation by designating a charity as the beneficiary of the proceeds of a life insurance policy, or a registered plan such as a RRSP, RRIF or TFSA.

A question commonly encountered with respect to donations is whether a will-maker wishes to donate directly to a registered charity or to a foundation.

If considering a particular charity, the will-maker should be familiar with the charity, as well as its purposes, and its objectives. If a will-maker would like the gift to be used for a specific purpose, the terms of a will-maker’s will should ensure that the specified intention of the gift represents a priority to the charity.

At times, will-makers wish to support a particular cause but are not familiar with charities supporting such a cause. Or a will-maker may wish to support multiple charities. In such instances, gifting to a foundation is a useful option to consider, as a donation to a foundation provides a degree of flexibility with respect to how a testamentary gift can be used. A will-maker may establish a donor directed fund to support a cause important to the will-maker or make a donation to a particular charity through the foundation.

Whether a testamentary donation is made directly to a charity or to a foundation, a will-maker should consider donating to an organization with strong governance and a succession plan. This is advisable for two reasons, especially in cases of large donations. The first is that the will-maker should consider whether the value of the donation is commensurate with the organization’s size and capacity. This is to ensure that the organization has the governance maturity to handle a particular donation. The second reason is to ensure the organization is well governed, as this would provide some confidence to a will-maker that the chosen organization will still be in existence when the testamentary donation is made in future years.

A will-maker’s will is a means to extend generosity beyond the lifetime of a will-maker and to leave a lasting legacy. If you wish to make a donation in your will, speak to your legal advisor about how best you can support causes important to you.