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Sunday, January 9, 2011

Can I leave my estate to charity?

A reader recently asked whether he could leave his full estate to charity. While many individuals want to leave specific amounts of money to various charities that have touched their lives, some individuals want to give their full estates. If this is something you are considering, here are some things to think about:

1.  Before you can give your estate to a charity, you must make sure that you leave adequate support for your dependants, if you have any. These are normally your spouse, your minor children, and adult children who can't earn a living because of a handicap.

2.  If you do not make a will, your estate will not go to charity. Period.

3.  Your estate doesn't have to be completely liquid to leave it to charity. If your estate a house in it, for example, the house would be sold by your executor and the money given to the charity.

4.  Make sure that you are very specific about which charities you wish to benefit. For example, if you just say "the cancer society", you should be aware that there is a national cancer society, several provincial societies, and many charities that are focused on specific kinds of charity (e.g. breast cancer) or specific groups who suffer from cancer (e.g. children) or specific hospitals. If you are unclear in your will about who is to receive the money, your estate could end up in court. Not all court applications are necessarily a fight; some are simply to figure out what a poorly drafted will is supposed to mean.

5.  It is often possible to name a specific purpose for a charitable gift, but you should be careful about this. You can, for example, say that funds are to be used for research or a building fund or a specific project. If you do so, you run the risk that by the time you pass away, that charity may not still be involved in the project you've mentioned. If you don't name a specific purpose (and most people don't) then the charity will use your money for whatever it identifies as a priority at the time.

6.  It's also possible to use your estate to set up a scholarship in your name. If this interests you, make sure you do some research and put some real thought into the idea. For example, there is no point setting up an annual scholarship for a promising music student at a college with no music program.

7.  You don't have to leave your estate all to one charity. You can name as many as you like, in the proportions you choose.

8.  If you have at least $300,000 to be given to charity, you have the option of going through a foundation. By doing so, the principal amount would be invested for a period of time or forever, and the income from the investment would be distributed to the charities each year. This is often done through a person's will, but can also be started  while the donor is still alive, with the funding coming after the donor has passed away. You would decide on a procedure that would work best for you by talking to an estate planning lawyer or financial planner, who can help you figure out the tax advantages of each method.

Using a foundation is simpler and cheaper than it sounds. It's possible to spend the time and money to establish your own foundation from scratch. A more popular choice is to use a foundation that already exists, such as Scotiabank's Aqueduct Foundation or your local community foundation.

9.  There are tax advantages to leaving your estate to charities. The impact of these advantages on your estate will depend on a dozen different factors, so you should discuss them with your financial planner, lawyer or accountant.

Some links you might want to check out:

Canadian Donor's Guide lists charities by type, name, etc and is a great resource if you are looking for charities that deal with a specific cause or purpose.

Canada Revenue Agency database lists all charities registered in Canada so you can check on their current status.

Aqueduct Foundation

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