Estate Donations and Charitable Bequests

Introduction
Understanding estate donations and charitable bequests is essential for families, business owners, philanthropists, and executors looking to reduce taxes and create meaningful legacy gifts. Charitable giving through an estate can significantly lower the tax owed on the deceased’s final return, reduce estate tax burdens, and allow assets to pass more efficiently to beneficiaries. Canada provides some of the most generous tax incentives in the world for charitable bequests, especially at death. When structured correctly, estate donations can eliminate capital gains tax, reduce RRSP/RRIF taxation, and provide full donation tax credits. When structured incorrectly, the estate can lose deductions, face reassessments, or trigger delays. This guide explains everything you need to know about estate donations and charitable bequests.

Legal and Regulatory Framework
Estate donations and charitable bequests are governed by the Income Tax Act, CRA donation rules for gifts at death, eligible charity registration requirements, the graduated rate estate (GRE) rules, Form T1 Final Return, Form T3 Estate Return, Québec’s Taxation Act, TP-646 for Québec estates, civil law succession rules, and planned giving legislation. Since 2016, CRA allows flexible allocation of donation credits between the deceased’s final return and the estate return, depending on the structure of the gift.

What Counts as a Charitable Bequest?
A charitable bequest is a gift made to a registered charity through a will. It can be a fixed amount, a percentage of the estate, a specific asset, or the residue of the estate after other distributions. Gifts may include cash, securities, real estate, RRSP/RRIF proceeds, life insurance, art, or other eligible property. The bequest must be clearly stated in the will and properly executed by the executor. Québec requires additional succession documentation to support charitable gifts under the Civil Code.

Tax Benefits of Estate Donations
At death, charitable gifts receive special tax treatment. The donation tax credit can be applied against up to 100 percent of income on the deceased’s final return. This includes income from capital gains triggered by deemed disposition, RRSP/RRIF income, business income, and investment income. Gifts may also eliminate capital gains tax when donating publicly traded securities. The estate may also claim unused donation credits for up to 36 months if it qualifies as a graduated rate estate (GRE). Québec provides provincial donation credits that further reduce tax, allowing donors to maximize the impact of estate donations and charitable bequests.

Donating Securities and Appreciated Assets at Death
One of the most tax-efficient strategies is donating publicly traded securities. CRA eliminates capital gains tax entirely when securities are donated rather than sold. This can save estates large sums and increase the value of the donation. Executors must transfer the securities directly from the estate to the charity to qualify. Québec has similar capital gains exemptions when the donation is structured properly. Real estate donations require appraisals and additional compliance documents.

RRSP and RRIF Charitable Designations
RRSPs and RRIFs are fully taxable at death unless rolled over to a spouse or dependent. However, naming a registered charity as beneficiary of an RRSP or RRIF allows the amount to bypass the estate and generate a donation credit equal to the value received by the charity. This often eliminates the tax on the RRSP or RRIF. In Québec, RRSP/RRIF beneficiary designations may require insurance contracts to be valid; otherwise the donation must flow through the estate. Executors must apply donation credits to offset tax on RRSP/RRIF value.

Life Insurance Donations
Life insurance can be used for charitable bequests in two ways: naming the charity as beneficiary or transferring ownership of the policy during life. When the charity is named as the beneficiary, the death benefit is not part of the estate and generates a donation receipt for the estate. If the policy is donated during life, the donor may receive annual donation receipts equal to premium payments. Québec succession rules must be followed to validate beneficiary designations.

Using a Graduated Rate Estate (GRE)
A GRE is a special type of estate that exists for up to 36 months after death. It can allocate donation credits flexibly to either the deceased’s final return, the estate return, or both. This makes GREs powerful tools for optimizing tax savings from estate donations and charitable bequests. To qualify as a GRE, the estate must meet specific CRA requirements and file the correct elections. After 36 months, the estate becomes a trust and loses GRE benefits.

Charitable Trusts and Testamentary Gifts
Some estates create charitable remainder trusts or designate future charitable gifts. These trusts allow the donor to provide income to family members for life while guaranteeing that the charity receives the remaining capital. These structures require actuarial valuations and precise trust drafting but offer long-term tax and philanthropic benefits. Québec trusts must follow TP-646 filing and civil code succession rules.

Documentation Required for Donation Claims
Executors must gather official donation receipts, appraisals for non-cash gifts, brokerage transfer records, RRSP/RRIF beneficiary confirmations, insurance policy documents, estate accounting records, and will clauses describing the bequest. CRA and ARQ require full documentation, especially for gifts of securities, real estate, or private company shares.

Key Court Decisions
Courts confirm that donation eligibility depends on the intent and legal effect of the gift, not informal promises. In Québec, Civil Code rules govern the validity of gifts in wills, and courts require strict compliance with succession procedures. Courts also confirm that charities must be registered at the time of the gift for tax benefits to apply. Improper documentation or valuation errors can invalidate donation credits.

Why CRA and Revenu Québec Audit Charitable Bequests
Audits often occur when donation receipts are missing, gifts are overvalued, real estate donations lack appraisals, RRSP/RRIF beneficiary designations are unclear, securities donations are executed incorrectly, or wills contain ambiguous language. Québec also reviews succession documentation and estate accounting for accuracy.

Mackisen Strategy
Mackisen CPA provides full tax planning and compliance for estate donations and charitable bequests. We structure charitable gifts to maximize tax savings, allocate donation credits between final and estate returns, verify RRSP/RRIF charitable designations, prepare T1 Final and T3 estate returns, evaluate GRE eligibility, prepare valuation and appraisal documentation, and defend charitable donations during CRA or ARQ audits. Our team works closely with notaries, estate lawyers, and financial advisors to implement strategic charitable giving plans.

Real Client Experience
A Montréal estate donated appreciated securities to a charity, eliminating over $60,000 of capital gains tax. Mackisen structured the donation and coordinated directly with the institution. Another client named a charity as RRSP beneficiary; we applied donation credits to eliminate all RRSP-related tax. A family used life insurance to create equal inheritances and fund a major charitable gift; Mackisen ensured tax optimization. A Québec charitable remainder trust required precise valuation; we handled both federal and provincial filings.

Common Questions
Are donations at death tax-deductible? Yes, up to 100 percent of income on the final return.
Does Québec recognize donation credits separately? Yes, with its own provincial credits.
Can an RRSP or RRIF be donated? Yes with correct beneficiary designation.
Do securities donations eliminate capital gains? Yes if transferred directly.
Can a GRE claim donation credits? Yes, within 36 months.
Do life insurance donations bypass probate? Yes in most provinces, with exceptions in Québec.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps families reduce taxes and create meaningful legacy gifts through estate donations and charitable bequests. Whether preparing final returns, structuring RRSP/RRIF donations, optimizing GRE benefits, or defending charitable claims with CRA or ARQ, our expert team ensures precision, compliance, and maximum tax savings.