Setting Up Charitable Bequests in Your Will

June 5, 2021

A bequest is a gift that is made in your will. More specifically, a charitable bequest is a gift designated for a nonprofit organization, trust, or foundation that takes effect upon your death. To make a bequest in your will, you will need to leave specific instructions for the amounts and recipients of the assets. These bequests can be modified and updated during your lifetime.

Types of Bequests

A will may contain one or more types of bequests:

• A specific bequest is a gift of specific property (e.g., “I give $100,000 to ABC Charity”)
• A residuary bequest is a net gift of the remainder of the estate after debts, taxes and other expenses have been paid (e.g., “I give 50% of my residuary estate to XYZ Charity”)

Either type of bequest can be made to a charity, but it’s important to keep in mind that specific bequests will be distributed first — a residuary bequest will only be made to the extent there are any assets left to distribute.

In addition to a bequest in your will, you can designate one or more beneficiaries of an insurance policy, annuity, IRA, or other assets with a beneficiary designation, which would be distributed outside of your will.

Often, there is a substantial tax benefit to leaving your IRA or other retirement assets to a charity in place of a bequest in your will. Neither you nor your estate will pay income taxes on the distribution of assets. The full amount of the IRA will directly benefit the charity because charities don’t pay income tax. In addition, your estate will receive a tax deduction for the charitable contribution, which can be used to offset estate taxes.

For these reasons, it’s a good idea to carefully select which assets to leave to a given charity to maximize the tax benefits to everyone involved.

Benefits of Making a Charitable Bequest

A charitable bequest can be an effective way to reduce estate tax for an individual with a taxable estate (greater than $11.7 million in 2021). An estate can deduct the value of assets distributed to a charity such as cash, real estate, and stock against the value of the estate.

In addition to the tax benefits, a charitable bequest can be a way to create a lasting legacy at an organization or a cause that is important to you. Many nonprofits can provide specific language to include in your will to ensure that your bequest will be honored.

If you don’t have a taxable estate and would not benefit from a charitable estate tax deduction, you may instead want to consider the income tax benefits by making a gift to charity during your lifetime. This also allows the charity to receive something sooner rather than waiting until the completion of your estate administration.

How Do You Set Up a Charitable Bequest?

Setting up a charitable bequest in your will is part of putting a comprehensive estate plan in place with your attorney. First Western Trust can assist in this process by helping you identify what you would like to do with your assets and to what extent you would like to support charitable causes and organizations that are important to you.

Investment and insurance products and services are not a deposit, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by the bank, and may go down in value. This information is not legal, investment, accounting or tax advice and is for informational purposes only. Readers should not rely on this information as a substitute for their own research or for obtaining legal, accounting or tax advice from their own counsel. Information is current as of April 28, 2021 and is subject to change without notice.