Charities often receive gifts by Will. But at times the donation is not made by the estate by the due date for filing the deceased’s terminal return, and at times the value of the donation may increase or decrease from the time of death to the time of delivery to the charity. How does a donor claim a gift made by Will if the gift is not received by the charity by the due date for filing the terminal return? How should the gift be valued if the property changes in value between the date of death and when the property is transferred to the charity? These queries were put to a CRA representative at the 2010 STEP conference in June.
CRA noted that when a gift to a registered charity is made pursuant to an individual’s Will, the Income Tax Act deems the gift to have been made immediately before the individual’s death. The donations should be included in the individual’s final return. Charitable donations may be claimed through the Will, as long as the donations are supported. The type of support that the donor must provide to CRA depends on when the registered charity or other qualified donee will receive the gift. For gifts that will be received right away, an official receipt is to be provided by the personal representative of the deceased.
For gifts that will be received later by the charity, a copy of the following is to be provided to CRA: (i) the Will; (ii) a letter from the estate to the charitable organization that will receive the gift, advising of the gift and its value; and (iii) a letter from the charitable organization acknowledging the gift and stating that it will accept the gift. CRA indicates that it will accept this documentation on an administrative basis on the understanding that a receipt will be provided by the charity when the charity actually receives the gift. The receipt must then be provided to CRA.
How does a charity determine the amount of the donation? Suppose, for example, that at the time of death the value of the donation, a percentage of the residue of the estate, is $100,000, but in the period from the time of death to the time the donation is delivered to the charity, the assets appreciate to $150,000, such that $150,000 is ultimately received by the charity. What is the amount of the donation to be recognized by the deceased? What if the donation declines in value? What if the donation is a specific gift, e.g. 1,000 shares of a public company, "Publicco"?
CRA stated that with respect to the amount of the gift, the value to be used to determine the eligible amount of the gift is the fair market value (FMV) at the time the gift is made, which is the date of death. To take the examples above, where the value of the residue on death is $100,000 but the assets appreciate to $150,000 at the time of receipt by the charity, the value of the gift for donation purposes would be $100,000. In the case of the specific gift of 1,000 shares of Publicco, the value of the Publicco shares that are donated would be their FMV on the date of death.
Where the value of the gift cannot be reasonably determined, no gift is allowed. An example is 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 liabilities have been paid.
Donors and charities will need to ensure that they comply with these rules when claiming and receipting gifts by Will.