How Charitable Giving Strengthens Your Estate Plan
Many people think of charitable giving as something they do during their lifetime. They support causes that matter to them, respond to community needs, and contribute to organizations that align with their values. What many do not realize is that charitable giving can also play a meaningful role in estate planning. For individuals and families who want to leave a lasting impact, including a charitable gift in a will is one of the most powerful ways to create a legacy.
In Canada, more people are starting to explore charitable bequests as part of their estate plans. For some, it is a way to reflect gratitude for the organizations that shaped their lives. For others, it is a thoughtful strategy to reduce the tax burden on the estate. The motivation may vary, but the outcome is similar. A well planned charitable gift can carry personal meaning while also offering practical benefits for the estate and its beneficiaries.
This week, we discuss why charitable giving is an important option to consider, the potential tax efficiencies, the various ways to give, and how executors handle these gifts. It offers clarity without providing technical tax advice, and readers should always consult legal or tax professionals for specific guidance.
Why Charitable Giving Belongs in Estate Planning
Estate planning is about much more than deciding who receives your assets. It is about defining your values and ensuring they continue to matter long after you are gone. A charitable gift can serve several important purposes.
1. It expresses personal values
A charitable bequest allows someone to support causes that reflect their beliefs, priorities, and life experiences. Whether it is healthcare, education, animal welfare, community development, or a local organization that made a difference in their life, charitable gifts create a lasting legacy.
2. It relieves pressure on surviving family members
Families often feel conflicted when they believe their loved one would have wanted to support a cause, yet nothing was formally documented. A clear charitable bequest removes that uncertainty and avoids disagreements among beneficiaries.
3. It can reduce the estate’s overall tax burden
Charitable gifts made through the estate can create tax credits that help reduce the amount of tax owed on the final tax return. These credits may offset taxes arising from income, capital gains, or registered account withdrawals that occur at death. The result is that more of the estate can be directed to the causes and people the individual cares about. The details depend on personal circumstances, so a qualified tax professional should always confirm the best approach.
If you are seeking assistance in bringing clarity and structure to your estate planning, my NEXsteps services are designed to support you through that process.
Sam passed away with a sizeable RRIF that became fully taxable at death. His will included a $10,000 bequest to a local hospice. The estate received a donation receipt for the same amount, which helped offset a portion of the tax triggered by the RRIF. The charity received meaningful support, and the estate preserved more funds for the beneficiaries.
How Charitable Gifts Reduce Taxes
Charitable giving can create tax advantages during life, but it can also play a role in reducing taxes at death. Here is a high level look at how this typically works.
When a person dies, their estate is required to file a final tax return that reports all income up to the date of death. This return often includes significant taxable income, especially if the individual held RRSPs or RRIFs, real estate with capital gains, investments, or other assets that trigger tax at death.
Charitable donations made through the will or by the estate can generate donation tax credits that may reduce taxes on either the final return or on the estate’s own filings. In Canada, donation claim limits increase at death. While living donors can generally claim charitable gifts up to 75 percent of their net income for the year, an estate can claim eligible charitable donations up to 100 percent of net income on the final return and the previous year’s return. This can create meaningful tax efficiencies, depending on the individual’s situation and provincial tax rates.
These credits can reduce the overall tax payable, sometimes to a significant extent. For families, the benefit is twofold. A cause that mattered to their loved one receives support, and the estate may preserve more value for its beneficiaries.
Shirley left five percent of her estate to a cancer foundation that supported her late spouse. The family appreciated that the gift was clearly documented, which prevented disagreements during a difficult time. The charity provided administrative support and the executor was able to apply donation credits to reduce the estate’s final tax bill.
Common Ways to Include Charitable Giving in an Estate Plan
There are several ways to incorporate charitable gifts into a will or estate plan. Some are simple, while others require more coordination. The best approach depends on the individual’s goals and assets.
1. Specific cash gifts
A fixed dollar amount designated to a charity. It is simple to administer and ensures clarity.
2. Residual gifts
A charity can receive a percentage of whatever remains in the estate after debts, taxes, and specific gifts are handled.
3. Gifts of securities
Donating appreciated investments can be tax efficient, since capital gains may be reduced while still supporting a charitable cause.
4. Life insurance beneficiary designations
A charity can be named as a beneficiary of a policy, creating a larger future gift without reducing current cash flow.
5. Donor advised funds
These funds allow structured giving during life, with instructions that continue automatically through the estate.
6. Registered account beneficiary designations
A charity can be named as the beneficiary of an RRSP or RRIF. Since these accounts are taxable at death, the donation receipt can help offset that tax.
What Executors Should Know About Charitable Gifts
Executors play a critical role in ensuring that charitable bequests are handled correctly. Their responsibilities may include:
- Contacting the charity and confirming legal names and charitable registration numbers
- Providing documentation to support the administration
- Coordinating valuations for non cash gifts
- Working with accountants to apply available tax credits
- Ensuring timing aligns with the rules of the estate
- Communicating clearly with both beneficiaries and the charity
Most charities have dedicated planned giving staff who understand estate administration. They help executors meet requirements and honour the donor’s intentions.
A family believed their mother had wanted to leave money to her church, but nothing appeared in her will. The beneficiaries disagreed on how to handle it. Because there were no written instructions, the executor could not legally make a donation from the estate. This created unnecessary tension. Clear planning would have prevented conflict and ensured the mother’s wishes were honoured.
Planning With Purpose
Charitable giving in estate planning is about intention, clarity, and alignment. It helps individuals support the causes they care about while potentially providing tax efficiencies for their estate. It can also give families peace of mind, knowing that their loved one’s values continue to have an impact.
If you are considering incorporating charitable giving into your estate plan or want help ensuring your wishes are documented clearly and respectfully, I can assist you in building a thoughtful and comprehensive plan.
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Disclaimer: This content is for general information only and is not legal, financial, medical, or tax advice.
