What Is a Bequest Donation and How Does It Work?

A bequest donation is a gift made through an individual’s will or living trust. This type of contribution takes effect only after the donor has passed away, providing a structured way to designate assets to charitable organizations or individuals. Bequests ensure wishes are fulfilled posthumously and are distinct from gifts made during a donor’s lifetime.

Understanding Bequest Donations

A bequest donation involves the formal designation of assets, such as money, property, or securities, within a donor’s last will and testament or living trust. Individuals or families often choose to make bequests to support favored causes, establish a lasting legacy, or honor specific people or institutions.

There are several common types of bequests. A specific bequest involves leaving a clearly defined item or a fixed sum of money to a named beneficiary, such as “$10,000 to a university” or “my collection of rare books to a library.” This type of bequest takes precedence over general or residuary bequests in estate distribution.

A residuary bequest involves giving all or a percentage of the remainder of the estate. This occurs after all specific bequests, debts, and estate expenses have been settled, acting as a catch-all for any assets not otherwise designated.

A contingent bequest takes effect only if certain conditions are met, or if a primary beneficiary is unable to receive the gift. For example, “if the primary beneficiary predeceases me, then the asset goes to a specific charity.” This type of bequest offers flexibility by accounting for unforeseen circumstances.

A percentage bequest allows a donor to allocate a specific percentage of their entire estate or the residuary estate. This method is useful when the exact value of the estate may fluctuate, ensuring that all beneficiaries share proportionally in any appreciation or depreciation of the estate’s value.

Creating a Bequest

Formalizing a bequest requires documentation within a legally valid estate planning instrument, primarily a last will and testament or a living trust. These documents serve as the blueprint for asset distribution after death, with a bequest forming a specific instruction within them. While a will often undergoes probate, a living trust can facilitate distribution without probate.

The process of including a bequest begins with consulting an attorney specializing in estate planning. Legal professionals ensure the bequest is legally sound, unambiguous, and compliant with relevant state laws governing estates and trusts. Their expertise helps accurately reflect the donor’s wishes and navigate estate administration complexities.

Identifying the beneficiary precisely is an important step in drafting a bequest. For charitable organizations, this involves stating their full legal name and, if available, their official tax identification number. Clear identification ensures the intended recipient receives the gift as planned, avoiding potential disputes or delays.

The asset being bequeathed must be clearly and accurately described. Whether it is an exact monetary amount, a specific property description, or a percentage of an estate, detailed language prevents misinterpretation. For example, specifying “my vintage car” rather than “my car” removes doubt about the exact item intended.

The executor of a will or the trustee of a trust plays a key role in ensuring the bequest is properly carried out. These individuals are legally responsible for managing the estate’s assets, paying debts, and distributing the remaining assets according to the donor’s instructions. They fulfill all provisions of the will or trust, including bequests, after the donor’s passing.

Estate planning documents, including those containing bequests, should be periodically reviewed and updated. Changes in a donor’s wishes, asset holdings, or shifts in legal requirements necessitate these revisions. Regular review ensures that bequests remain consistent with current intentions and circumstances.

Tax Implications of Bequests

Charitable bequests offer tax advantages for the donor’s estate. Gifts made to qualified charitable organizations are fully deductible from the donor’s gross estate for federal estate tax purposes. This deduction, authorized under Internal Revenue Code Section 2055, can substantially reduce or eliminate federal estate tax liability, as there is no limit to the amount that can be deducted for gifts to eligible charities.

State-level estate or inheritance taxes may offer similar deductions for charitable bequests. Specifics vary across state jurisdictions, but many states provide provisions that can reduce or offset state estate taxes when charitable contributions are made. Rules and applicability are not uniform and depend on the specific state’s tax laws.

Qualified charitable organizations, such as those recognized under IRS Section 501(c)(3), receive bequests tax-free. Because these entities are tax-exempt, the full value of the bequest can be used to further their mission without being diminished by income taxes. This maximizes the impact of the donor’s generosity to the chosen cause.

Bequests made to individuals, as opposed to charitable organizations, are not considered taxable income to the recipient. However, the donor’s estate may be subject to federal estate taxes if its total value exceeds the applicable exemption threshold. For 2024, the federal estate tax exemption is $13.61 million per individual, meaning estates valued below this amount do not incur federal estate tax. This exemption is indexed for inflation and is subject to change, with projections suggesting it may revert to lower levels in future years if not extended by Congress.

Given the complexities of tax laws and individual financial situations, consulting with a qualified tax advisor or estate planning attorney is recommended. These professionals can provide personalized advice regarding the tax implications of bequests, ensuring compliance and maximizing tax efficiency. Their guidance helps align philanthropic goals with optimal financial planning.