CRA Opines on Technical Problems with Bequests
By: Arthur Drache C.M. QC

Almost everybody who works in the area involving gifts to charities knows that when it comes to gifts by will (bequests) an awful lot of technical problems can apply. Very often these problems involve determining when a bequest is made and who, if anybody (deceased or estate) gets the benefit of tax relief. But at a recent conference of the Society of Trust and Estate Practitioners (STEP) the CRA was asked to give it view on more technical issues, those which arise when the transfer is made to the charity a substantial time after the death of the testator.[1]

             1. How do you claim a gift made by will if the gift is not received by the charity by the due date for filing the terminal return?

            2. How do you value the gift if the property changes in value between the date of death and when the property is transferred to the charity?

The detailed question posed at the conference was this:

Where a donation is made by will, it is considered to be a donation of the deceased.  However, as a practical matter, sometimes the donations are not made by the due date for filing the terminal return.  In these circumstances, what is the recommended practice? 

    ·         Does one submit the donation receipts made up to the time of filing, and then amend the return afterwards, or does one claim a donation equal to the amount stipulated in the will, and subsequently provide the receipts?

    ·         What would happen if the donation is stated to be a portion of the residue of the estate?  How does one determine the amount of the donation?  For example, suppose at the time of death the value of the properties that ultimately comprise the residue of the estate total, say, $500,000, but in the intervening period from death to the time when the property is delivered to the charity, the assets appreciate to $600,000, such that $600,000 is ultimately received by the charity.  Is the donation to be recognized by the deceased $500,000 or $600,000? 

    ·         What happens if the assets depreciate in value? Also, what happens if the assets to be donated are specified (e.g., 1,000 shares of Publicco)?

               The CRA responded as follows: "When a gift to a registered charity is made pursuant to an individual's will, subsection 118.1(5) deems the gift to have been made immediately before the individual's death for the purposes of section 118.1. These donations should be included in the individual's final return (or in the prior years return). The requirements for supporting these donations can be found on page 16 of the guide, T4011, Preparing Returns for Deceased Persons 2009:

                You can also claim charitable donations made through the will, as long as you support the donations. The type of support you have to provide depends on when the registered charity or other qualified donee will receive the gift:

    ·         For gifts that will be received right away, provide an official receipt.

    ·         For gifts that will be received later, provide a copy of each of the following:

                1.       the will;

                2.       a letter from the estate to the charitable organization that will receive the gift, advising of the gift and its value; and

                3.       a letter from the charitable organization acknowledging the gift and stating that it will accept the gift.

                Please note that the CRA will accept this support on an administrative basis on the understanding that a receipt will be provided by the charity when the gift is actually transferred to the charity. Pursuant to subsection 118.1(2), a receipt in prescribed form is required in order to claim a donation tax credit.

                With regard to the amount of the gift, the value that is to be used to determine the eligible amount of the gift for the purposes of proposed subsection 248(31) is the FMV at the time the gift is made, i.e., on the date of death. In situations where the value of the gift cannot reasonably be determined no gift will be allowed. This could be the case, for example, where a specific gift has been designated in the will, but it is unclear if the estate will have sufficient funds available to make the gift after the estate's liabilities have been paid. 

                With regard to the specific examples you provided, in the first case, the value of the residue that is donated would be $500,000.  In the second case, the value of the Publicco shares that are donated would be their FMV on the date of death. "