For people thinking about long-term estate planning, one of the most common considerations is how to leave personal property to your loved ones. There are several options worth reviewing when creating a will or trust.
Jump ahead to these sections:
- Definition of a Bequest
- Is There a Difference Between a Bequest and a Gift?
- Are There Different Types of Bequests?
- Tax Implications for Bequests
- Examples of Bequests
One way to make sure your loved ones receive the personal property you want them to have after your death is simply to “gift” the property to them during your life. The downside to this is that when you make a gift during your life, the property is no longer yours after you complete the gift.
The easiest way to guarantee that your loved ones receive your personal property when you die without giving up title to the property during your life is to make a “bequest” of (or bequeath) the property in a will or trust.
Definition of a Bequest
A “bequest” is the legal term for the transfer of a legal title in personal property to another person or entity through your estate plan—usually through a will or trust. To make a bequest, you designate in your will or trust what property you want a named beneficiary to receive and the terms under which you want them to receive it after your death.
At the appropriate time, your executor of your will or the trustee of your trust will distribute the property to the named beneficiary according to your instructions in the will or trust. By doing this, you “bequeath” personal property to your loved ones after your death.
Is There a Difference Between a Bequest and a Gift?
In the practical sense, a bequest is a gift. But a bequest is a gift that is completed through your estate plan—through a will or trust. A gift is made during life through the voluntary “handing over” of personal property to another party. The main difference between a bequest and a gift is that a gift is not subject to the instructions you set out in the legal documents that make up your estate plan.
A bequest and a gift ultimately accomplish the same thing in that they transfer assets to another party. But they are different with respect to how the transfer of property is completed.
A bequest in a will exists, and is completed, when you include a provision in your will that transfers personal property from your estate to a beneficiary. Your will does not become effective until your death. So the transfer of your personal property to the beneficiary does not take effect until then.
After you die, the person in charge of your estate (the executor of your will) will distribute the personal property to the named beneficiary. The transfer is not completed until after your death and the transfer comes from your probate estate.
A bequest in a trust works the same way. At the appropriate time, the person in charge of your trust, known as the trustee, will distribute the personal property you bequeathed in your trust to the beneficiary.
If your trust is a living or “inter vivos” trust (meaning it is effective during your life), then the transfer could be completed during your life, but it is effective only through your estate plan. If your trust is a “testamentary trust” (meaning it takes effect upon your death), then the bequest is not completed until after your death, according to the terms of your trust.
A gift, on the other hand, is completed during your life and is not subject to any terms or conditions that are part of your estate plan. Your gift of property is completed when you transfer the property or the title to the property to someone else. Once the property is “handed over,” the gift is completed and you have no further interest in or legal right to the property.
Even though you may still be alive, you cannot change your mind and take the gift back or take legal possession of the personal property again without the new owner’s consent. You completed the gift when the other person or entity took possession of it or acquired the title to it. Once you make a gift of property, the property is no longer yours.
With a bequest, however, you make the bequest during your life in your will or trust, but it does not become effective until you die, with the exception of an inter vivos trust. Unlike a gift, however, should your financial circumstances change or you wish to amend your estate plan, you may alter or change your bequest by amending your will or trust during your life before the bequest is completed.
You cannot amend a gift because it is completed when it is made. By contrast, you can change a bequest because it is not completed until your will or trust takes effect. So, when you make a bequest, your property remains yours and under your control during your life. Your bequest is not completed until you die.
Are There Different Types of Bequests?
There are several different types of bequests that you can make through your estate plan. Here are some of the most common types of bequests:
A “general” bequest is one through which you transfer personal property that is not identified as a specific asset. Rather, the property bequeathed is generally included with other similar assets that are distributed. A general bequest usually comes in the form of cash, given generally from the estate.
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A “specific” bequest is one through which you transfer a specific item of personal property that is distinguishable from other items that are distributed. A specific bequest could be a specific amount of cash taken from a specific bank account--distinguishable from cash held in other accounts.
When all of your personal property has been officially distributed from your estate, a “residual” bequest can be made. It is typically known as a transfer of all the personal property that remains. The property left in your estate is called the “residue” of your estate, and the person you name to receive the residue of your estate is called the “residual beneficiary.”
A “charitable” bequest is one through which you transfer property to some type of charitable institution or other entity that serves a general charitable purpose. The charity becomes the beneficiary of your charitable bequest. One benefit of making a charitable bequest is that it can reduce the amount of taxes that your estate has to pay.
A bequest can be characterized as an “executory” one when the transfer of the personal property has conditions that have to be met before the transfer is completed. The condition may be that the beneficiary must complete a specific task or achieve some accomplishment, such as “graduate from high school,” or that some specific event must occur, such as a “30th birthday” or the “purchase of a first home.”
All of these are “bequests” that are expressed in your will or trust. You make these bequests when you execute the will or trust, but they are not completed until you die.
Tax Implications for Bequests
Making a bequest of property in your estate plan can be more than just a way to give property to loved ones. It also can serve as a significant tax savings if your estate may be subject to estate and gift taxes.
Under the federal tax laws for 2021, you are allowed to make gifts during your life to other individuals such as relatives, friends, and loved ones up to $15,000 per year, per individual, without the gift being subject to federal gift taxes.
In addition, if you die with an estate valued under $11.7 million (for an individual) or $23.4 million (for a married couple), your estate will not have to pay estate taxes when you die. However, if you give a gift to another person that is valued over $15,000, or have an estate that is valued over $11.7 million ($23.4 million if you are married), a bequest may work for you.
By making a bequest of property through a trust—which is not included as part of your probate estate—you can avoid taxes that you might not otherwise have if you simply gifted the property.
Making charitable bequests allows for certain tax savings because charitable contributions qualify as an exclusion from the gift tax. They also can reduce the total value of your taxable estate when you die.
Examples of Bequests
Anyone who makes a will and gives away personal property at their death makes a bequest. Wills are the most common instrument for making bequests. Many people give away real property like land in their will, but a transfer of real property in a will is called a “devise.” A bequest is a transfer of personal property—items such as furniture, jewelry, automobiles, or collectibles. Any of the following provisions in a will would be considered a “bequest”:
- General bequest: “I leave $25,000 to each of my three children.”
- Specific bequest: “I want my brother, John Doe, to have my red 1972 Corvette, which is stored in my garage.”
- Residual bequest: “All of the property in my estate that I have not listed in this will, I give to my cousin, John Doe.”
- Charitable bequest: “I hereby direct my trustee to donate $5,000 every year to the Society for the Prevention of Cruelty to Animals, to be used for abandoned animals in its care.”
- Executory bequest: “On her 21st birthday, my granddaughter, Jane Doe, may have the fountain pen I use in my study, which my grandfather gave to me on my 21st birthday.”
Any transfer of personal property that becomes effective through a legal instrument that is part of your estate plan, like a will or trust, may be considered a bequest.
Consider the Benefits of Making a Bequest
Everyone enjoys giving gifts, especially when you are present to see the recipient’s response. That said, it can be nearly impossible to give away all of your personal property during your life. Most people choose to bequest their personal property in a will or trust, to be effective upon their death.
Making a bequest offers several benefits, as mentioned above.
Firstly, it ensures your property will be distributed to the people you choose. You can retract, revoke, or amend your bequest any time during your life.
Secondly, It allows you to give away your property to loved ones without losing possession of the property during your life.
And lastly, it may offer significant tax savings.
Before you give away your property to your loved ones during your life, consider the advantages of bequeathing personal property in a will or trust. Your attorney or estate planner can help you determine what is best for you.