Your charitable gift can offset estate taxes

How registered monies applied to a legacy gift go a long way
March 17, 2016
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By Silvia Ugolini

Making a will helps ensure that your future wishes are carried out and that loved ones are considered. For some, designating a planned gift to a favourite charity makes the process more meaningful — even rewarding. It can also offer substantial tax advantages. 

I speak to numerous individuals who are pleasantly surprised to learn how their savings can be multiplied when applied to a bequest — a charitable gift in their will. Consider, for example, registered monies — registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs).

Upon the passing of an individual or both partners in a couple, the balance of their remaining RRSP or RRIF monies are fully taxable. This means the estate will retain a little over half of the value of the remaining RRSP/RRIF monies.

On the other hand, any percentage of RRSPs/RRIFs that has been allocated towards a charitable gift will not be taxable. This results in a significantly increased capacity to give to a charity and less dollars paid by the estate in taxes.

I recently outlined this concept to a couple who consulted with me. At right are some graphs that help illustrate the idea.

Scenarios B and C demonstrate that a gift made to a charity in a will changes the amount retained by the estate by roughly only half of the total value of the gift. The difference is achieved by tax savings.      

Too often, we see tax-free proceeds from an estate go to charity, while taxable registered monies go to family. It should be the reverse.

Leaving behind an RRSP  or RRIF percentage to charity enables many individuals — who may not have the ability to make a major gift in their lifetime — to leave behind a significant donation to a cause that is dear to them while protecting their estate for their loved ones.  

 

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Scenario A
No gift made to charity
 

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Scenario B
One third of RRSP/RRIF savings given to charity

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Scenario C
Half of RRSP/RRIF savings given to charity

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