There are many reasons to give to a charity: a personal
relationship with a particular charity, a sense of social
responsibility, the need to help others less fortunate, or wanting
to give back to the community. Studies have shown that in addition
to benefiting the community, the act of giving could increase the
wellbeing, self-esteem and reputation of the donors themselves.
Because charitable giving can affect the disposable income and
savings of donors, donors may not be able to donate the amount they
would like. For donors who would like to donate larger amounts but
can't afford to do so during their lifetime or who wish to
leave a legacy after their death, a donation can be made through a
declaration in a Will.
The advantages of making a donation in this manner, is that the
general income limitation (i.e., the maximum amount of donations
that may be claimed in a year is generally limited to 75% of the
donor's net income) does not apply; 100% of the donations made
in the year of the donor's death and the immediately preceding
year can be claimed in those years. The donation(s) are also deemed
to occur in the donor's terminal year therefore, a donation tax
credit can be claimed on the donor's final tax return even
though the actual donation may occur during the administration of
the estate. Furthermore, any excess donations may be carried back
to the year prior to death.
Making a donation through a Will however, does have its
drawbacks. For example, the donor will not be able to benefit from
any tax savings during his/her lifetime or be able to witness the
benefit his/her donation provides. Also, the executor may not be
able to claim the full tax credit available if the donor has a low
level of income because the death occurred early in the year (this
also assumes the preceding year's income was low).
With respect to the last item, the 2014 federal budget, proposes
to provide some relief by allowing more flexibility to executors to
apply donation credits. If the proposals are accepted, donations
made by Will (and designated donations) will be deemed to have been
made by the estate at the time at which the property is transferred
to a qualified donee and the executor will then have the
flexibility of claiming the donation in the year in which the
estate makes the donation, an earlier taxation year of the estate
or the last two taxation years of the deceased individual/donor. To
qualify, the donation must be made within the first 36 months
following the individual's death. The changes are expected to
apply to donations made by Will or designation donations for deaths
that occur on or after January 1, 2016.
Thus, donations can now be used to reduce the taxable income of
the deceased individual in a manner most advantageous to the
estate. Hopefully, this encourages people to consider making a
donation as part of their estate planning.
"To further facilitate charitable giving, the trustee
of an individual's estate will be allowed increased flexibility
to apply charitable donation credits against the income tax
liabilities of the individual or the estate." -2014 Federal
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
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