What is a Charitable Bequest & Why Should You Care?

A charitable bequest allows individuals to leave a lasting impact by supporting causes they care about. It plays a crucial role in philanthropy, estate planning, and tax benefits while ensuring financial stability for heirs. Many nonprofits depend on these contributions to sustain their mission and expand their reach. Understanding how charitable bequests work helps maximize their benefits and align them with personal and financial goals.

What is a Charitable Bequest and Why Does It Matter?

A charitable bequest is an estate planning tool that allows individuals to allocate assets to nonprofit organizations. It matters because it provides long-term funding for charitable causes while offering potential tax benefits to the donor’s estate. Many organizations rely on these contributions to support programs in education, healthcare, and social services. Estate plans that include charitable bequests help donors create a meaningful legacy while ensuring financial efficiency.

How Does a Charitable Bequest Work?

A charitable bequest works by allowing an individual to allocate a portion of their estate to a nonprofit organization through a legally binding document, such as a will or trust. The donor specifies the amount, type of asset, or percentage of the estate to be given. Upon the donor’s passing, the executor or trustee ensures the assets are distributed according to the instructions.

Charitable bequests can take different forms, including cash donations, securities, real estate, or valuable personal property. The organization receives the bequest after all debts, taxes, and other obligations have been settled. Depending on the structure of the gift, the bequest can be unrestricted—allowing the charity to use the funds as needed—or restricted for a specific purpose, such as scholarships, medical research, or community programs.

These bequests provide financial benefits by reducing taxable estate value, potentially lowering federal and state estate taxes. Charitable bequests also ensure that a donor’s philanthropic legacy continues, supporting meaningful causes while benefiting heirs by optimizing estate distribution.

What Are the Different Types of Charitable Bequests?

There are several types of charitable bequests, each offering different ways to support nonprofit organizations while aligning with estate planning goals.

1. Specific Bequest – A specific bequest designates a particular asset, such as a fixed amount of money, a piece of real estate, stocks, or valuable personal property, to a charitable organization. Example: “I bequeath $50,000 to [Charity Name].”
2. Residual Bequest – A residual bequest allocates the remaining portion of an estate to a charity after all debts, expenses, and other distributions to heirs have been fulfilled. Example: “I leave 25% of my residuary estate to [Charity Name].”
3. Contingent Bequest – A contingent bequest takes effect only if a primary beneficiary cannot inherit the asset. Example: “If my spouse does not survive me, I leave my estate to [Charity Name].”
4. Percentage Bequest – A percentage bequest grants a specific percentage of an estate to a charity instead of a fixed amount. This method accounts for fluctuations in estate value. Example: “I bequeath 10% of my estate to [Charity Name].”
5. Restricted Bequest – A restricted bequest specifies how the charity must use the donated funds, such as for scholarships, medical research, or community programs. Example: “I bequeath $100,000 to [Charity Name] for its cancer research program.”
6. Unrestricted Bequest – An unrestricted bequest allows the charity to use the funds at its discretion for general operations or areas of greatest need. Example: “I bequeath $25,000 to [Charity Name] to be used at its discretion.”
7. Honorary or Memorial Bequest – A bequest made in honor or memory of a loved one, supporting a specific cause or program. Example: “I bequeath $50,000 to [Charity Name] in memory of my mother, to support educational scholarships.”

Each type of charitable bequest provides unique benefits, ensuring donors can align their estate planning with their philanthropic values while maximizing tax advantages.

How Can You Include a Charitable Bequest in Your Estate Plan?

You can include a charitable bequest in your estate plan by following a structured process to ensure your wishes are legally recognized and effectively carried out.

1. Determine the Charity – Identify the nonprofit organization you want to support. Verify its legal name, tax-exempt status, and mission to ensure alignment with your philanthropic goals.
2. Choose the Type of Bequest – Select the type of charitable bequest that best suits your financial and estate planning needs. Options include specific, residual, contingent, percentage, restricted, or unrestricted bequests.
3. Work with an Estate Planning Attorney – Consult an estate planning attorney to draft or update your will or trust. Legal guidance ensures the bequest meets state laws and IRS regulations while preventing disputes among heirs.
4. Draft the Bequest Language – Use precise wording to clearly state the amount, percentage, or asset being donated. Example: “I bequeath $50,000 to [Charity Name], a nonprofit organization with Tax ID [EIN Number], for its general purposes.”
5. Update Beneficiary Designations – Designate the charity as a beneficiary on assets such as retirement accounts, life insurance policies, or payable-on-death (POD) accounts. This method allows charitable giving without altering your will.
6. Inform the Charity – Notify the charity about your bequest to ensure they can process and utilize the donation effectively. Some organizations provide donor recognition or planned giving programs.
7. Review and Update Regularly – Revisit your estate plan periodically to reflect changes in financial status, tax laws, or philanthropic priorities. Updates help ensure your charitable intentions remain aligned with your legacy goals.

Including a charitable bequest in your estate plan provides long-term support to nonprofits while offering potential tax advantages and ensuring your values extend beyond your lifetime.

What Are the Tax Benefits of Charitable Bequests?

The tax benefits of charitable bequests provide financial advantages to an estate while supporting nonprofit organizations. These benefits help reduce estate taxes and maximize charitable contributions.

1. Estate Tax Deduction – Charitable bequests are fully deductible from the taxable estate, reducing the total estate value subject to federal and state estate taxes. According to the IRS, donations to qualified charities lower estate tax liability, allowing more assets to pass to heirs.
2. Avoidance of Capital Gains Tax – Appreciated assets such as stocks, real estate, or business interests donated through a bequest are not subject to capital gains tax. The charity receives the full value of the asset without tax deductions reducing its worth.
3. Reduction of Inheritance Taxes – In states that impose inheritance taxes, leaving assets to a nonprofit may reduce or eliminate tax obligations for heirs, as charitable gifts are often exempt. Each state has specific laws governing inheritance tax exemptions.
4. Tax-Efficient Giving from Retirement Accounts – Designating a charity as a beneficiary of tax-deferred accounts, such as an IRA or 401(k), avoids income tax on withdrawals that heirs would otherwise have to pay. The nonprofit receives the full amount tax-free.
5. Potential State Tax Benefits – Some states offer additional tax incentives for charitable giving, which can further reduce estate settlement costs and maximize the value of donations. Consult with an estate planning attorney to determine state-specific advantages.
6. Preservation of Wealth for Heirs – Strategic estate planning using charitable bequests can balance tax savings with wealth preservation. Reducing taxable estate value ensures more assets are passed to beneficiaries while supporting philanthropic causes.

Charitable bequests provide significant tax advantages while allowing donors to leave a lasting legacy. Proper planning ensures both philanthropic goals and financial benefits are maximized.

Are There Alternative Ways to Give Through Your Estate?

Yes, there are alternative ways to give through your estate beyond a traditional charitable bequest. These options provide flexibility in estate planning while maximizing the impact of charitable giving.

1. Charitable Remainder Trust (CRT) – A CRT allows you to transfer assets into a trust that provides income to you or your beneficiaries for a set period. After that period, the remaining assets go to the designated charity. This method reduces estate taxes and provides income tax benefits.
2. Charitable Lead Trust (CLT) – A CLT provides income payments to a charity for a specified time. After the term ends, the remaining assets pass to your heirs, reducing estate and gift tax liabilities.
3. Donor-Advised Fund (DAF) – A DAF enables you to contribute funds to a managed charitable account and recommend grants to nonprofits over time. Contributions qualify for an immediate tax deduction and allow for long-term, strategic giving.
4. Retirement Account Beneficiary Designation – Naming a charity as a beneficiary of an IRA, 401(k), or other tax-deferred retirement account allows the organization to receive the full value of the account tax-free. Heirs would otherwise owe income taxes on withdrawals.
5. Life Insurance Policy Donation – Assigning a charity as the beneficiary or owner of a life insurance policy provides a large future gift while offering potential tax deductions on premium payments.
6. Qualified Charitable Distribution (QCD) – Individuals aged 70½ or older can donate directly from their IRA to a qualified charity, satisfying required minimum distributions (RMDs) without increasing taxable income.
7. Payable-on-Death (POD) or Transfer-on-Death (TOD) Accounts – Bank accounts, investment accounts, and other financial assets can be transferred directly to a nonprofit organization upon death, bypassing probate.
8. Gift of Real Estate – Real estate can be donated outright, through a retained life estate (where you live on the property while gifting ownership), or via a trust, reducing capital gains and estate tax obligations.

These alternatives provide various tax benefits, income opportunities, and estate planning advantages, ensuring that charitable goals are met while maximizing financial efficiency.

What Impact Do Charitable Bequests Have on Nonprofits and Beneficiaries?

Charitable bequests have a significant impact on nonprofits and beneficiaries by providing long-term financial support, sustaining essential programs, and expanding charitable initiatives. These contributions help organizations plan for the future and serve communities more effectively.

1. Financial Stability for Nonprofits – Charitable bequests provide nonprofits with unrestricted or designated funds that ensure long-term operational stability. Many organizations rely on these planned gifts to fund programs, research, and infrastructure.
2. Expansion of Programs and Services – Bequests allow charities to develop new initiatives, improve existing services, and reach more people in need. Educational institutions, healthcare providers, and social service organizations use these funds to enhance their impact.
3. Sustainable Funding for Future Generations – Many nonprofits establish endowment funds using charitable bequests, ensuring ongoing support for their mission. These funds generate investment income that provides consistent financial resources over time.
4. Reduction of Financial Uncertainty – Unlike annual donations that may fluctuate, planned bequests provide predictable funding, allowing nonprofits to budget more effectively and plan long-term strategies.
5. Increased Philanthropic Influence – Large charitable bequests can inspire other donors to contribute, leading to matching gifts, grant opportunities, or fundraising campaigns that further amplify impact.
6. Support for Underserved Communities – Many bequests are designated for scholarships, medical research, housing initiatives, and community development, directly improving the lives of individuals who rely on nonprofit services.
7. Preservation of a Donor’s Legacy – Bequests ensure that a donor’s values and philanthropic goals continue beyond their lifetime, supporting causes they care about and leaving a lasting impact on society.

Charitable bequests strengthen nonprofits by providing essential financial resources, expanding program capabilities, and improving the lives of beneficiaries. Their impact extends beyond immediate needs, creating a lasting difference in communities worldwide.

What Are the Key Benefits of Making a Charitable Bequest?

Making a charitable bequest offers several key benefits, including financial advantages, legacy preservation, and philanthropic impact. These benefits ensure long-term support for nonprofits while providing estate planning advantages.

1. Estate Tax Reduction – Charitable bequests are fully deductible from the taxable estate, lowering the estate’s overall value and reducing federal and state estate taxes. The IRS allows unlimited deductions for qualified charitable donations, benefiting both the donor’s estate and chosen charities.
2. Avoidance of Capital Gains Tax – Appreciated assets such as stocks, real estate, or business interests donated through a bequest avoid capital gains tax, allowing the charity to receive the full asset value while maximizing tax efficiency.
3. Flexibility in Estate Planning – Charitable bequests can be modified at any time, allowing donors to adjust their giving based on financial circumstances, new beneficiaries, or changing philanthropic priorities.
4. Legacy Preservation – A bequest ensures that a donor’s values and charitable intentions continue beyond their lifetime, supporting causes they care about while leaving a lasting impact. Many nonprofits offer naming opportunities for endowed funds or scholarships.
5. Support for Meaningful Causes – Charitable bequests fund education, healthcare, scientific research, community development, and other essential programs, providing long-term benefits to society. Organizations rely on these contributions to sustain operations and expand outreach.
6. No Immediate Financial Burden – Unlike lifetime donations, a bequest does not affect current financial stability, as the donation is made after the donor’s passing. This allows individuals to support charities while ensuring financial security for themselves and their families.
7. Honorary and Memorial Giving – Bequests can be made in honor or memory of loved ones, creating a meaningful tribute that supports charitable missions while preserving family legacies.
8. Encourages Philanthropic Giving – A charitable bequest can inspire heirs and future generations to engage in philanthropy, fostering a culture of giving within families and communities.

Making a charitable bequest provides significant tax advantages, ensures long-term nonprofit funding, and allows donors to create a lasting philanthropic legacy while maintaining financial flexibility.

How Can You Set Up a Charitable Bequest Step by Step?

Setting up a charitable bequest requires a structured approach to ensure legal validity, tax efficiency, and alignment with personal and philanthropic goals. Follow these steps to establish a charitable bequest in your estate plan:

1. Choose the Charity

Select a nonprofit organization that aligns with your values and mission. Verify its legal name, tax-exempt status (501(c)(3) in the U.S.), and charitable purpose to ensure it meets eligibility criteria for tax benefits.

2. Decide the Type of Bequest

Determine the type of charitable bequest that best fits your estate planning goals:

• Specific Bequest – A fixed dollar amount, asset, or property.
• Residual Bequest – A percentage of the remaining estate after other distributions.
• Contingent Bequest – A gift that takes effect only if a primary beneficiary cannot inherit.
• Percentage Bequest – A specified percentage of the total estate.
• Restricted Bequest – A donation designated for a specific purpose (e.g., scholarships, research).
• Unrestricted Bequest – A flexible donation the charity can use where it is most needed.

3. Consult an Estate Planning Attorney

Work with an attorney to draft or update your will or trust to include the charitable bequest. An attorney ensures that the language is legally sound and prevents disputes.

4. Draft Precise Bequest Language

Use clear and specific language to outline the bequest in your legal documents. Example wording:
“I bequeath [$X or X%] of my estate to [Charity Name], a nonprofit organization with Tax ID [EIN Number], for its general purposes (or specify intended use if restricted).”

5. Update Beneficiary Designations

For tax-efficient giving, designate the charity as a beneficiary of retirement accounts (IRA, 401(k)), life insurance policies, or payable-on-death (POD) accounts. This avoids probate and provides the full value to the charity.

6. Notify the Charity

Inform the organization of your bequest to ensure they can process the gift and recognize your contribution. Some nonprofits offer planned giving programs and donor recognition.

7. Review and Update Your Estate Plan Regularly

Revisit your estate plan periodically to reflect changes in finances, family circumstances, tax laws, or charitable interests. Ensuring accuracy helps prevent legal complications for heirs and nonprofits.

Setting up a charitable bequest is a strategic way to support nonprofit organizations, reduce estate taxes, and leave a lasting legacy while maintaining financial flexibility.

What Sample Wording Can You Use for a Charitable Bequest in Your Will?

Using clear and legally precise language in a will ensures that a charitable bequest is properly executed. Below are sample wordings for different types of bequests:

1. Specific Bequest (Fixed Amount or Asset)
   “I bequeath the sum of [$X] (or describe the specific asset, such as ‘my shares in XYZ Corporation’ or ‘my property located at [address]’) to [Charity Name], a nonprofit organization with Tax ID [EIN Number], for its general purposes.”
2. Residual Bequest (Remaining Estate After Obligations)
   “I give, devise, and bequeath [X%] of the residue of my estate to [Charity Name], a nonprofit organization with Tax ID [EIN Number], to be used at its discretion.”
3. Contingent Bequest (If Primary Beneficiary Cannot Inherit)
   “If [primary beneficiary’s name] does not survive me, then I bequeath [specific amount, asset, or percentage] of my estate to [Charity Name], Tax ID [EIN Number], for its general purposes.”
4. Percentage Bequest (A Portion of Total Estate)
   “I leave [X%] of my total estate to [Charity Name], a nonprofit organization, for its ongoing charitable work.”
5. Restricted Bequest (For a Specific Purpose)
   “I bequeath [$X or X%] of my estate to [Charity Name] to be used exclusively for [describe intended purpose, such as ‘educational scholarships for underprivileged students’ or ‘cancer research initiatives’].”
6. Unrestricted Bequest (Charity Decides Use of Funds)
   “I bequeath [$X or X%] of my estate to [Charity Name] to be used for its general charitable purposes at its discretion.”
7. Honorary or Memorial Bequest (In Honor of Someone)
   “I bequeath [$X or X%] of my estate to [Charity Name] in memory of [Honoree’s Name] to support [specific charitable cause or program].”

Including clear wording in a will ensures the intended charity receives the bequest without legal challenges. Consulting an estate planning attorney ensures compliance with state laws.

How Do Charitable Bequests Compare to Other Forms of Giving?

Charitable bequests differ from other forms of giving in timing, tax benefits, flexibility, and impact. Below is a comparison:

1. Timing of Donation

• Charitable Bequests: Donations occur after the donor’s passing, allowing them to retain full control of assets during their lifetime.
• Lifetime Giving: Donations made during the donor’s life benefit charities immediately and provide income tax deductions.

• Charitable Bequests: Reduce estate taxes by lowering the taxable estate value but do not provide income tax benefits.
• Direct Lifetime Donations: Allow immediate income tax deductions, which reduce taxable income in the year of the gift.

• Charitable Bequests: Can be modified or revoked at any time before death, allowing donors to adjust their plans.
• Donor-Advised Funds (DAFs): Allow donors to make contributions during their lifetime while distributing grants to charities over time.

• Charitable Bequests: Reduce estate value but can optimize asset distribution to heirs by lowering tax burdens.
• Charitable Lead Trusts (CLTs): Provide income to a charity for a set period before passing assets to heirs, reducing estate tax liability.

• Charitable Bequests: Pass appreciated assets to charities without heirs facing capital gains tax.
• Lifetime Stock Donations: Allow donors to transfer appreciated securities to nonprofits, avoiding capital gains tax while receiving an income tax deduction.

• Charitable Bequests: Naming a charity as a beneficiary of an IRA or 401(k) avoids income tax on distributions for heirs.
• Qualified Charitable Distributions (QCDs): Allow individuals over 70½ to donate directly from an IRA without increasing taxable income.

• Charitable Bequests: Assets remain in the donor’s control throughout their lifetime.
• Charitable Remainder Trusts (CRTs): Provide lifetime income to the donor before the remainder passes to the charity.

Charitable bequests offer flexibility, estate tax benefits, and long-term impact, while lifetime giving provides immediate benefits to charities and tax advantages to donors. Choosing between these options depends on financial goals, estate planning needs, and philanthropic priorities.