Ways to Structure a Charitable Gift in a Canadian Will
Making a Charitable Gift in a Will
A Will can leave gifts to individuals, organizations, and other beneficiaries. However, in Canada, one specific point determines whether a gift to an organization produces a tax benefit for the estate: the recipient must be a registered charity or another qualified donee officially recognized by the Canada Revenue Agency (CRA) at the time the gift is transferred to it by the estate.
A "non-profit" is not the same thing as a charity. Many organizations operate on a non-profit basis without being official registered charities, and a gift to one of those organizations will not generate a donation receipt or a tax credit. A charity's registration can be confirmed through the CRA's list of charities. Recording the unique charitable registration number in the Will helps remove doubt about which organization is being referred to.
This matters in practice because charities can merge, rename, and wind up. Many separate charitable organizations could even share the same or similar names. A gift described only as "to the local animal shelter" can be difficult for an executor to fulfill or, at the very least, may lead to uncertainty.
Ways a Gift Can Be Structured
A fixed sum
A stated amount — $10,000, say — to a named charity. This is simple and predictable, and the executor does not need to value the estate in order to figure out the value of the gift.
The drawback is that a fixed sum does not go up or down with the value of the estate. An amount that represented a modest share when the Will was signed may represent a large one decades later, or be consumed entirely if the estate has shrunk significantly.
A specific asset
Examples include a particular piece of real estate, a specific shareholding, or a piece of artwork. Precise, but exposed to risk: if the asset is no longer owned at death, the gift generally fails and the charity receives nothing. If this is not what is intended, the Will should state what should happen instead.
A percentage or share of the residue
All or part of whatever remains after debts, taxes, expenses, and other gifts have been paid. You can think of this as a percentage — anything up to 100% — of the remaining estate. As a percentage or share of the estate, these gifts increase in size as the value of an estate increases, and decrease as the value of an estate declines. They help ensure the relative value of the charitable gift remains the same, as compared to the other beneficiaries.
A contingent gift
This type of gift is conditional. It takes effect only if something else happens — for example, if a named beneficiary dies before the Will-maker. This can be a useful backstop, but if the condition is not met (for example, if the primary beneficiary outlives the Will-maker) the charity receives nothing.
A restricted gift
This is a gift directed to a specific use at the charity, such as an identified program, area of research, or particular use.
Restrictions are used when an individual has very specific wishes about how their gift must be used; however, they carry a risk worth understanding. A charity may not be able to comply with the restriction and may need to decline the gift. A narrowly-drawn restriction may become impossible to satisfy years later if the program has closed or community needs have changed. A common solution is to restrict the gift while allowing the charity to apply the gift to a similar purpose if the original, stated purpose is no longer feasible or practical. This risk can also be mitigated by discussing your wishes with the charity prior to completing the Will.
An endowed gift
An endowed gift is held and invested by the charity, which invests the gift as permanent capital and distributes amounts each year according to the charity's endowment spending policy. Charities often have their own endowment policies and minimum amounts, so this is another case where a conversation with a charity beforehand is worthwhile.
Giving Assets Rather Than Cash
Publicly traded securities can be donated directly to a charity and provide a distinct tax advantage. Where listed securities are donated in-kind to a registered charity, the capital gain on those securities is reduced to zero. In contrast, selling publicly traded securities first, and then donating the cash proceeds, triggers tax on the gain. For someone holding appreciated shares, giving the shares directly is generally the better route.
Registered plans and life insurance are subject to beneficiary designations in most provinces (but not necessarily in Quebec). If a charity is designated as the beneficiary of a life insurance policy, or an RRSP, RRIF, TFSA, or certain other registered accounts or funds, the asset passes directly to the charity, outside of the estate (although there may still be tax implications for the estate).
Epilogue covers this in How to Leave a Gift to Charity Using a Registered Account in Canada.
Real estate and private company shares can be donated in a Will, but both generally require professional advice — a charity may not be able or willing to accept them, and the tax treatment is less straightforward.
The Tax Effect
Canada has no estate tax and no inheritance tax. A charitable gift made through a Will can generate charitable donation tax credits, which reduce income taxes payable by the estate.
Donation tax credits may be more flexible for gifts made in a Will than for charitable donations made during one's lifetime: in certain circumstances, the donation limit used to calculate the charitable tax credits rises to 100% of net income for the year of death and the immediately preceding year (instead of 75%). The executor may also have some flexibility regarding the taxation year(s) in which the donation credits can be applied, which can help mitigate taxes payable by the estate.
Some Practical Points
Name the charity correctly — full legal name plus CRA registration number
Name an alternate or give the executor the ability to direct the gift to a similar charity
Talk to the charity before imposing restrictions or making an endowed gift
Consider the effect on family — a charitable gift reduces what is left to others, and letting people know in advance can help prevent surprises
Revisit the Will after major changes, and if the charity itself changes
Key Points
In Canada, only registered charities and qualified donees can issue donation receipts; "non-profit" organizations cannot
Fixed sums are predictable but do not scale up or down with the estate; percentages of residue do
A gift of a specific asset may fail if the asset is no longer owned at death
A charity may have to refuse a restricted gift that it cannot comply with
Donating publicly traded securities in-kind may avoid the capital gain that selling them first would trigger
Canada has no estate or inheritance tax; the benefit is a reduction in income tax payable by the estate
FAQ
Which organizations qualify for a charitable gift?
Registered charities and other qualified donees recognized by the CRA. An organization can be a non-profit without being a registered charity, in which case a gift to it does not produce a donation receipt or credit.
What are the main ways to structure a charitable gift?
A fixed sum, a specific asset, a percentage of the estate, a contingent gift, or a restricted gift directed to a particular purpose.
What happens if the charity no longer exists?
It depends on the Will. Naming an alternate charity, or giving the executor power to direct the gift to a similar organization, can prevent the gift from failing.
Can conditions be placed on how a gift is used?
Yes, but a charity may have to decline a gift whose conditions it cannot meet, and a narrow restriction may become impossible to satisfy over time. Stating the purpose while allowing flexibility is a safer approach.
Is it better to give shares or to sell them and give the cash?
Giving publicly traded securities in-kind is generally more tax-efficient because any capital gain on the securities is effectively eliminated for this type of donation.
Can a charity be named as beneficiary on an RRSP or a life insurance policy?
In most common-law provinces, yes. Quebec has different rules for beneficiary designations, particularly for registered plans, so charitable gifts are often structured differently there.
Does a charitable gift reduce tax?
A charitable gift in a Will can reduce income tax payable by the estate. Charitable donation tax credits arising from gifts made in a Will may be subject to more flexible and favourable treatment than similar gifts made by an individual during their lifetime.
Is an online Will suitable for a charitable gift?
For a straightforward estate, generally yes. Epilogue includes charitable gifts in its guided process and offers free lifetime updates. Complex restrictions, private company shares, or larger estates where tax planning drives the structure warrant professional advice. Epilogue also runs a dedicated charity program.
Disclaimer: Epilogue is not a law firm and cannot provide any legal advice. This article is for informational purposes only and may not cover all legal considerations. For complex estate planning needs, consult a qualified estate planning professional.
