Such a generous soul, you are. You have grand plans to give your estate to charity. Maybe you’ll even leave out the wife and kids. Good-hearted though you are, some things are untouchable. But you could get some great tax breaks (and karma) by giving to charity, now or after you die.
How Charitable Donations Benefit Your Community
Organizations like LEAVE A LEGACY™ encourage Ontarians to will gifts to a favourite charity. Your money can go to such great causes as the Toronto Humane Society, SickKids Foundation, a GTA college or university, CNIB or many others.
Leave Enough for Your Family
Think you can disinherit the wife and kids? No such luck. Mandatory amounts to support a dependent spouse (married or common-law) come out of your estate before charitable donations. You are also obliged to provide for children under 19, in college or university (usually up to age 22) and adult children who rely on you for financial support because of a mental or physical disability. Pay your debts and family first, then donate your estate residue (what’s left over) to charity.
Tax Breaks for Charitable Bequests
Leaving gifts to charity can benefit your estate by reducing your final income tax return. Estate donations receive tax credits in the year the gift was made (usually the year you die) or any of the following five years.
Get a GRE to Maximize Tax Credits
Your estate trustee can also set up a GRE (graduated rate estate) to allow a charitable donation to be taxed the year you die, year prior to your death or after a GRE was created. That gives your trustee a choice of which tax year would be most beneficial for your estate. On the downside, the estate trustee only has three years to transfer a gift to charity. That may not be sufficient if your estate is held up in probate court or assets like real estate need to be sold.
Reduce Your Taxes During Your Lifetime
Donor-advised funds are a tax-savvy way to give to charity. You can set up an account while you are alive and contribute cash, securities or other assets you expect to go up in value. Your ongoing contributions are gifted to a charity immediately, earning you tax credits during your lifetime. You pay no capital gains tax on the gifts, maximizing the amount you give to each cause. Even artwork, stock in a limited partnership or real estate can go into a donor-advised fund. A wills and estates lawyer can help you arrange one.
Planned Giving Prevents Probate Fees
You could wait until you die, but if you give today instead, not only will charities benefit right away, but you can reduce probate fees payable after death. Fees to distribute your estate can be up to 1.5% of the value of an asset. Donating throughout your life gives you annual tax credits and you can leave the rest of your estate to a charity by naming it beneficiary of a life insurance plan. The annual insurance premiums qualify as a yearly donation for tax purposes. Since the policy passes outside your estate, irate heirs can’t touch it.
Donating If You Don’t Have Cash
You don’t need cash to donate to charity. You can:
- name a charity beneficiary of your company pension, RRSP or RRIF
- make gifts in kind, such as computers or a boardroom for meetings
- contribute professional services from businesses you own
- give away land or a home, at fair market value
- or donate flow through shares in resource industries like oil or gas companies or renewable energy startups.
Appoint a Co-executor for a Complex Estate
Asking a family member to administer a complex estate may be more than they can handle. Appoint a professional such as an accountant or bank administrator for estates that are difficult to unwind. And be specific — are you leaving money to a national charity or its Ontario office?
Are You Being Too Generous to Others?
Just because you give to charity doesn’t mean your heirs will agree with your choices. They may contest your will in an Ontario probate court if money they feel is rightfully theirs is donated to personal causes. Be wary of giving away so much that your heirs tie up your estate with probate delays and legal expenses.
Adding a Failure Clause in Case Your Heirs Die
Failure clauses in a will ensure if all your heirs die before you, your estate goes to charity. If you are mentally incapable of changing your will when that happens, a failure clause can prevent your estate from being distributed in ways you didn’t plan. You wouldn’t want government to get your assets, now would you?
What to Give Your Lawyer
Your wills and estates lawyer will need the correct legal name and charitable registration number of charities you plan to include in your will. Email or phone the charities in advance and bring this to your first meeting with your legal advisor.
We Help You Give to Charity in Your Will
Axess Law Ontario wills and estate lawyers give you practical legal advice on donating your estate to charity. Chat with a licensed lawyer via remote video call anywhere in Ontario by dialing toll free to 1-877-552-9377 or 647-479-0118 in Toronto or using our online appointment booking form. In person meetings are available at our Ottawa, Toronto, Scarborough, Etobicoke, Vaughan, Mississauga Winston Churchill or Mississauga Heartland law offices. Click here to learn more about Axess Law’s wills and estate services.