Estate Planning: Charitable Donations

Including charitable donations in your estate plan is one of the most impactful ways to support causes you care about, even after you're gone. Whether you're passionate about education, the arts, or animal welfare, estate planning offers a structured, tax effective path to philanthropy. For Ontarians looking to give back, there are several legal and strategic considerations to keep in mind when incorporating charitable giving into your estate plan.

Charitable giving is a personal and often profound expression of your values, life experiences, and the causes that matter most to you. For many, it’s a way to give back to organizations, communities, or institutions that have shaped their lives. For others, it’s an opportunity to create a legacy that reflects their beliefs, particularly when they don’t have children or dependents to inherit their estate.

Including charitable donations in your estate plan offers both personal and practical benefits. It allows you to support meaningful causes while potentially reducing the tax burden on your estate. You might consider a charitable gift if you’ve regularly contributed to nonprofits during your life, want to make a lasting impact beyond your lifetime, or have a substantial estate and wish to ensure a portion of it serves the public good. Charitable giving can also be a way to honour someone’s memory or establish a family tradition of philanthropy. With thoughtful planning, your generosity can continue to make a difference long after you're gone.

Types of Charitable Gifts in a Will

There are two main ways to include a charity in your Will: as a specific gift or as part of the residue of your estate.

A specific gift is a fixed amount of money or a particular asset (e.g., $25,000, a piece of art, or a property) left to a charity. This kind of gift is straightforward and often used when the donor wants to guarantee a certain contribution. One downside is that if your estate ends up being smaller than expected, the gift must still be paid, which could reduce what’s left for other beneficiaries.

A residual gift involves leaving a percentage of what remains in your estate after debts, taxes, and other bequests have been handled. For example, giving 20% of the residue of our estate to a Foundation. This method allows your charitable donations to scale with the size of your estate and makes it easier to divide assets among multiple beneficiaries, including both individuals and organizations.

Both approaches can be powerful tools and the choice depends on your financial situation, priorities, and the overall structure of your estate plan.

When leaving a gift to charity, clarity is key. Always use the full legal name of the charity, include its charitable registration number (available through the Canada Revenue Agency), and indicate whether the gift is unrestricted or intended for a specific purpose. An estate lawyer can help draft language that ensures your gift is directed as intended, avoiding confusion or disputes.

Tax Advantages of Charitable Donations

 Charitable donations in your Will can provide valuable tax benefits for your estate. Under the Canadian Income Tax Act, donations made by Will are treated as if they were made immediately before death. This allows your estate to claim donation tax credits in the year of death or the preceding year, which can significantly reduce the final tax bill and preserve more of your estate for other beneficiaries.

Properly structuring your charitable gifts may also help reduce probate fees (also known as the Ontario Estate Administration Tax). Not all charitable donations have to go through your Will. In Ontario, you can also name a charity as a direct beneficiary on certain accounts or assets, such as RRSPs, RRIFs, TFSAs, and life insurance policies. This approach offers two advantages: the asset passes outside of your estate thus avoiding probate fees and the charitable donation also qualifies for a donation tax credit.

For maximum tax efficiency, consult with an estate lawyer before finalizing your charitable bequests. Certain gifts such as appreciated securities may also trigger capital gains, so thorough planning is essential.

Establishing a Charitable Trust or Foundation

For those with more complex estates or long-term philanthropic goals, setting up a charitable trust or private foundation may also be appropriate. These structures allow you to control how funds are distributed, lets you support multiple charities, and permits you to involve family members in ongoing governance if desired. Charitable trusts can be set up during your lifetime or through your Will. They offer great flexibility but also require legal advice and ongoing administration.

Charitable donations through your estate are more than a financial decision, it's a statement of your values. With thoughtful planning you can make a difference in your community and reduce the tax burden on your estate.

At E is for Estates, we understand that your legacy matters. Whether you're passionate about supporting a cause, easing the tax burden on your estate, or simply ensuring that your intentions are honoured, we're here to help you integrate charitable donations seamlessly into your estate plan.

This article is intended for informational purposes only. For personalized advice tailored to your specific circumstance, please reach out to the E is for Estates team.

Erin L. Watson, B.A., JD

Lawyer & Notary Public

E is for Estates