DEFINITION of 'Bequest'

A bequest is an act of giving personal property or financial assets such as stocks, bonds, jewelry and cash to an individual or organization through the provisions of a will or estate plan. Bequests can be made to family, friends, institutions or charities. When real estate is left through a will, it is called a devise.

BREAKING DOWN 'Bequest'

If estate taxes are a concern, individuals may opt to bequest assets to heirs indirectly through a gift in trust. A gift in trust allows grantors to avoid taxes on gifts that exceed the annual gift tax exclusion amount. In 2018, the IRS announced the estate and gift tax exemption is $5.6 million per individual and $11.2 million for a married couple. The individual limit is up from $5.49 million in 2017. The annual gift exclusion amount is $15,000, up from $14,000 in 2017.  

Gift givers can also avoid taxes by exercising their Crummey power. This allows the beneficiary to withdraw the gift for a limited time, which makes the gift a present interest and eligible for the gift tax exclusion. In general, gifts in a trust are commonly used by parents or grandparents who want to establish a trust fund for their children or grandchildren. 

Charitable gifts after death also have the power to reduce estate taxes. When a bequest is left to a charity, it may be called a legacy gift. Such bequests can be important sources of fundraising for nonprofit organizations. When the bequest is intended for a specific purpose, it is called an endowment.

Bequest and Estate Planning

Individuals and families wishing to grow and/or preserve assets for future generations should consider a formal estate plan. An estate lawyer can be helpful in this regard, given the intricacies involved in exchanging wealth from one generation to another. In addition to writing a will, major estate planning tasks can include but are not limited to:

  • Naming an executor of the estate to oversee the terms of the will
  • Limiting estate taxes by setting up trust accounts in the name of beneficiaries
  • Establishing a guardian for living dependents
  • Creating and/or updating beneficiaries on plans such as life insurance, IRAs and 401(k)s
  • Establishing annual gifting to qualified charitable and non-profit organizations to reduce the taxable estate
  • Setting up a durable power of attorney (POA) to direct other assets and investments

Estate planning can even include more personal logistics like setting up funeral arrangements.

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