On January 15th, 2016 the Department of Finance announced changes to the trust and estate donation rules that came into effect at the beginning of 2016. Three measures affected charitable donations, including two improvements to the “estate donation” rule.
1. Timing of Transfer
Estate donations – gifts by will and direct designation gifts of life insurance and registered funds – were originally aligned with the 36-month graduated rate estate (GRE). Executors had 36-month after death to transfer property to a qualified donee to take advantage of five-year claim period: the final two lifetime returns, the year of receipt, or the any year of the GRE prior to year of receipt. Charities were concerned that estates in litigation or with illiquid assets would be unable to meet the 36-month transfer deadline, which would reduce tax savings and value of the gift.
The transfer deadline has now been extended from 36 to 60 months after death. The claim period is the final two lifetime returns and the estate year in which the gift was received for the period after the 36-month GRE.
The 60-month transfer period provides enough time for the vast majority of estates to complete the gift to charity and claim maximum tax benefit. The claim period is reduced for those gifts received after the initial 36-month GRE, but in most situations involving illiquid assets or litigation there should be an alignment of liability and credit/deduction. The extra 24-month period will be less forgiving to estate trustees who are late distributing assets or have not timed liabilities and credits. The extension will help ensure the gift to charity is maximized.
2. Capital Gains Exemption
The rules have been fixed to ensure that donations of property exempt from capital gain during life – ie public securities, cultural property gifts and eco-gifts – will be exempt for estate donations. These rules assume that the property is owned by the individual prior to death. Capital gain exemptions in year of death also apply to the extended claim period.
3. Donations by Trusts
The other change relates to gifts from trusts, presumably made at the discretion of the Trustee as opposed to mandated by the settlor. A tax receipt may be issued for a donation made by the trust within 90 days after the end of the calendar year in which the primary beneficiary dies. This enables the donation to be claimed in the final taxation year of the trust.
Kudos are due to the Department of Finance for the consultation process. With the change of government these amendments could have been lost. Here’s hoping that Finance will also provide legislative clarification for estates with private share donations and charitable remainder trusts.