What you should know when you plan to donate by bequest
Why is it a good idea to have a will?
A will gives instructions on matters related to one's own estate. This is especially important when deviating from the statutory canons of inheritance and giving instructions in advance on the division of the inheritance.
A will can also be used to determine the degree to which bequeathed or gifted property can be seen as preheritance to avoid future disputes among the heirs, which often apply specifically to preheritances.
In a will it is also possible to decree that the property going to heirs as inheritance should not be subject to the heir’s spouse’s marital rights to property. This is an important testamentary disposition in a will because young married couples do not always have prenuptial agreements, and because divorce is quite common nowadays. With this testamentary disposition, the inheritance is not subject to the requirement of an adjusting payment stemming from the marital rights of the heir's spouse in the event of a divorce.
In certain situations, a will can also decree that heirs should have the right to partially or completely relinquish their entitlement to an inheritance in favour an heir of their own. However, tax authorities not always approve partial renunciations of inheritance, which can lead to double taxation in the form of both inheritance tax and gift tax.
What are questions that need special attention when considering a donation by bequest?
When considering the bequeathing of property for charitable purposes, or for use for a specific purpose, it is important to ensure that the recipient of the donation is a solvent entity operating for the long term with the ability and required organisational resources to implement the goals that the testator hopes to achieve with the bequest and the support.
How are issues of taxation and donation linked? What direct or indirect taxation benefits can the donor get from the bequest?
It is good to donate by bequest to an entity whose promotion of the common good is well established, so that the recipient will not be required to pay inheritance or gift tax on the property. Universities are such organisations that promote the common good. Private individuals and estates of the deceased may deduct donations of no less than €850 and no more than €500,000 in a single calendar year from their taxation. Donations to universities by limited liability companies and other organisations can be deducted from the income tax of the donor on the condition that the donation is of no less than €850 and no more than €250,000 per calendar year.
For someone donating through a last will and testament, the bequest usually does not bring any tax benefits, because estates of the deceased rarely earn income in the years following the person's death, but the beneficiary can, of course, carry out the purpose of the giver better if no inheritance or gift taxes need to be paid. At present, the maximum inheritance and gift tax is 33 percent of the value of the gift when the recipient is not related to the testator.
In the inheritance taxation of the person making a bequest, the value of donations made in a will can be fully deducted from the taxable property of the estate. Heirs may naturally also make the donations in question from their own inheritance, in which case they will have the right to deduct the gift from their earned income. In such a situation the donation is from received net funds, but the savings in taxes is likely to be greater when their marginal tax rate for earned income is higher than the inheritance tax rate.
What else is good to know about donating by bequest?
Donations stipulated in a will are gifts that are not implemented until after the death of the donor. The formal requirement is that it takes the form of last a will and testament. Stipulations in a will do not affect the life of the donor, or the use of their funds during their lifetime. Instead, the donation goes from the estate to the recipient if the property in question is still in the estate when the donor dies.
If there is a change of heart, can a will be cancelled or altered?
The testator can cancel or alter the will at any time, assuming that they are legally competent in the sense of being capable of understanding the implications of their actions. The easiest way to cancel a will is to destroy all copies of the will, and the alteration takes place by drafting a new one with the signatures of witnesses.
Any other thoughts about donating through a last will and testament?
Donating by bequest is a cost-effective and effectual way to implement the desire of the testator to give monetary support for a purpose that benefits the public good.