The Price of Kindness: Giving After
Photo Credit: Wansbroughs
By: Ken Lee | KLee Tax and Financial Services Co.
Published: 15 December 2025 4:00AM EST
All references to a spouse include common-law partners. All references to the ‘Act’ or the 'ITA' mean the Income Tax Act, RSC 1985, c. 1 (5th Supp.), as amended. All references to the ‘Regulations’ or the 'ITR' mean the Income Tax Regulations. The following should not be construed as legal nor tax advice. Consultation with your usual tax/legal professional is advised. Please contact us to discuss the contents of the article herein.
Good morning Toronto! As discussed in previous articles, the death of a taxpayer generally triggers capital gains, while registered assets (like RRSPs and RRIFs) are fully taxable as income, unless a rollover applies. Even so, these rollovers only delay the realization of the tax liability. Generally, death triggers significant tax liability at the highest marginal rates. Thus, estate planning equally balances managing the tax consequences of death, as well as distributing the assets in accordance with the decedent’s wishes. This article aims to discuss the role of charitable giving in estate planning and the tax mechanisms of making charitable gifts on death.
It is common for many wills to include a donation to a registered charity that is paid out of the taxpayer's estate after their death. While the intention is established by the deceased, the actual donation is executed by the estate trustee during the administration of the will. The estate will be permitted to allocate the resulting donation tax credit to the deceased's terminal tax return or the immediately preceding tax year. Generally, due to the discussed tax implications, it is more beneficial to allocate the credit to the terminal return. Unlike charitable donations made during life, which are limited to 75% of net income, testamentary donations benefit from an increased limit of 100% of net income.
Example 1
Christian died on 1 November 2025. Due to the deemed disposition of his assets and the income remaining in his RRSP, his net income in the year of his death was $150k. In the previous year, his net income was $50k. In his will, he has left a $250k bequest to a registered charity.
- As only 100% of the donation tax credit can be claimed for the terminal return and the preceding tax year, the estate trustee should allocate $150k of credits to the 2025 year, and $50k to the 2024 return.
- Only $200k of the donation would be ‘utilized’, leaving $50k of the donation unused.
- The $50k can be carried forward up to 5 years if Christian's estate receives additional income. However, it is claimed to the usual limit of 75% of net income.
These donations tend to be particularly effective in estates with significant unrealized capital gains or substantial RRSP/RRIF balances, especially where there is no surviving spouse to defer taxation and appeal to individuals who seek to retain full control over their property during their lifetime. However, the donation is contingent on the estate having sufficient liquidity to satisfy other liabilities (i.e. debt) before the charitable gift. An estate trustee owes a charity the same fiduciary duty (to act in a party’s best interest) as any other beneficiary. Charities are known to litigate to defend the bequest in the event of trustee misconduct or will challenges by other beneficiaries.
To avoid ambiguity, it is important to specify what type of bequest is being made. In Ontario, testamentary gifts can be classified into three categories:
- Specific bequests gift a clearly identified asset or fixed amount of money from a specific source to a named beneficiary. However, they are vulnerable to failure if the asset no longer exists.
- Residual bequests gift a part of/all of whatever remains (the "residue") after all liabilities and specific bequests of an estate are paid out
- Contingent bequests come into effect only if the primary intention of the original bequest cannot be met, often survival.
Example 2
In his last will, Nathanial wrote:
‘I bequeath $50k to my son, Christian, from my BMO TFSA.’
A year after writing his will, Nathaniel closes all of his accounts with BMO and moves them to RBC. He dies without updating the will to reflect this.
- The specific bequest is tied to a particular account. As the account is not open, the bequest fails, and Christian is not entitled to anything from the estate unless Nathanial’s will contains other valid provisions for Christian.
Example 3
In her last will, Juliana wrote:
‘I bequeath all that is remaining in my estate after the fulfillment of all other liabilities and other specific bequests I have made to go to my daughter, Hedda. In the event that Hedda predeceases me, I bequeath her share to go, in equal shares, to all children born to or adopted by Hedda, and Sunnybrook Hospital.’
After fulfillment of all other provisions of the will, $100k is left over.
- As a residual bequest, all $100k that is left over will be inherited by Hedda.
- If Hedda were to have died before Juliana, then the $100k would be split by all of Hedda’s children and the Hospital. If Hedda were to have no children, then the hospital would receive the entire $100k.
- If Hedda is still alive with Juliana dies, then her children and the hospital receive nothing unless the will contains other valid bequests.
In addition, a particularly powerful form of charitable giving includes the in-kind donation of publicly traded securities (i.e. stocks traded on an exchange, mutual funds, and ETFs). When directly bequeathed to a registered charity, the resulting capital gain is fully exempt from tax. At the same time, the charity issues a donation receipt for the FMV of the securities at the time of the transfer, which generates donation tax credits that can be applied to other income. In this sense, an in-kind donation is ‘double-dipping’ as you get both an exemption on capital gains, but also a tax credit. By contrast, if the estate were to sell the security and donate the cash proceeds, while they would still get the donation receipt, they would be fully liable for the accrued capital gains tax. Given that the TFSA and RRSP/RRIF are preferentially taxed, for those taxpayers considering making a gift, it is ideal to, where possible, leave securities in non-registered accounts to charities.
Example 4
Sabine bought $10k worth of shares in RBC when she was 18. The shares have substantially appreciated in value. When she dies, Sabine plans to donate all of the shares directly to Sunnybrook Hospital.
- If the bequest is executed, Sabine’s estate will not pay capital gains tax on any of the shares.
- In addition, the estate will receive a hefty donation receipt for the FMV of the shares on the date of the transfer.
In conclusion, making charitable gifts at death provides a meaningful way to support the community while also defraying the tax consequences of death. The next article will explore strategies for charitable giving during one’s lifetime.
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