Charitable Bequests and Stock Market Turmoil

Tumbling stock markets always stir up anxieties. This is certainly true for charities that depend on donations, as well as for the donors who give to them. One type of donation that is remarkably unaffected by market roil is the bequest.

Canada is experiencing a steady, long-term increase in charitable bequests because of a combination of societal factors. These factors include the aging of society, greater concentration of wealth, smaller and non-traditional families, increased profile of philanthropy, and generous tax incentives for gifts of assets. Over the last 20 years, an environment has been created where more Canadians are feeling comfortable with devoting a significant portion of their net worth to charity.

For charities and executors, however, choppy markets produce practical challenges during estate administration. For example, when there is a significant position of public securities, the date of death value of an estate may be significantly less than the value at time of distribution to beneficiaries. There are the obvious issues of reduced bequests, investment challenges for the executor, and disappointed beneficiaries. Should the will specify gifts of individual assets to different beneficiaries it can also produce unintended inequity.

Market turmoil will also affect how bequests are paid to charity. It has become more common to distribute public securities “in kind” to charities to eliminate capital gain, but volatile markets may result in more cash distributions. Dropping market values may decrease the tax benefit of in-kind distributions and increase the complexity of the estate accounting.