Bequest - Explained
What is a Bequest?
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Back to: INHERITANCE, ESTATES, & TRUSTS
What is a Bequest?
Bequest is the term used to refer to giving personal property or financial assets to a person, business entity, or an organization via the provisions of a will or an estate plan. This personal property or financial assets can include stocks, bonds, jewelry, and in most cases cash. Bequests can be offered to family members, friends, organizations, and even charity. In a case where a real estate is transferred via a will, it is called a devise.
How Does a Bequest Work?
Bequests can be used as a method of tax evasion in situations where estate taxes are a concern. In such cases, the taxpayer might choose to bequest such assets to heirs via a gift in trust. Gift in trusts are financial instruments that allow grantors to have their way around taxes on gifts that are higher than the designated annual gift tax exclusion benchmark. For 2018, the IRS stated that the estate and gift tax exemption amount was $5.6 million per individual and $11.2 million for a married couple. For single individuals, the limit was increased from $5.49 million in 2017 to the present amount of $5.6 million in 2018. The annual gift exclusion amount as of 2018 was $15,000, a $1000 increase from the set amount of $14,000 in 2017. Using Crummey power, taxpayers or gift givers can prevent paying taxes on gifts in trust. The Crummey power allows beneficiaries of a charitable act to withdraw the gift for a limited time, which in turn makes a gift a current interest and qualified for the gift tax exclusion. To be clear, gifts in a trust are commonly used by parents in most cases, or even grandparents to establish trust funds for their children or grandchildren. It is also crucial to include that estate taxes can be reduced considerably via charitable gifts after death. When a bequest is transferred to a charity or any charitable organization, it may be called a legacy gift. This type of bequest can be used as great sources of fundraising for non-profit organizations or institutions. Some bequests are called endowments, and this term refers to a bequest that is intended for a particular purpose.
Estate Planning and its Association to Bequest
Individuals and families that are looking to grow or keep assets and financial property for their future children and generations should look at a formal estate plan. In doing this, the family or individual might find the help of a private lawyer as essential, given the complex nature of exchanging wealth from one generation to another generation. Also, in addition to writing a will, estate planning can include any of the following details given below:
- Assigning an executor of the estate to supervise the terms and conditions of the will being drafted.
- Setting up trust accounts in the name of beneficiaries in an attempt to mitigate estate taxes
- Setting up a guardian for living dependents (cases where the taxpayer has dependents)
- Creating and/or updating beneficiaries on plans like life insurance, IRAs, and 401ks
- Setting up annual gifting to eligible charities and non-profit organizations and institutions as an attempt to reduce the taxable estate
- Establishing a durable power of attorney (POA) to oversee other assets and investments of the taxpayer.
In some cases, estate planning can include personal arrangements like organizing funeral arrangements.
- Succession Planning
- Chartered Trust and Estate Planner
- Cy Pres Doctrine
- Exordium Clause
- Non-Contestability (No Contest) Clause
- Per Stirpes
- Elective Share
Qualified Domestic Relations Order (QDRO)
- Declaration of Trust
- Uniform Gifts for Minors Act
- Acceptance of Office by Trustee
- Beneficial Interest
- Asset Protection Trust
- Bare Trust
- Blind Trust
- Charitable Lead Trust
- Credit Shelter Trust
- Discretionary Trust
- Generation Skipping Trust
- Grantor Trust Rules
- Living Trust
- Inter Vivos Trust
- Qualified Domestic Trust (QDOT)
- Qualified Terminal Interest Protection Trust (QTIP)
- ABLE Account
- Accumulated Income Payments (Canada)
- Charitable Split-Dollar Insurance Plan
- Coverdell Education Savings Account