When you start making a will, you’re going to run across some weird legal terms. One of our all-time favorites is bequest. And no, that’s not what a knight goes on to slay the dragon or save the princess.
A bequest is a gift you leave to someone in your will or trust. Think of it as one last act of generosity to let the people you love know you cared. And here at Ramsey, we love generous people. (That’s Baby Step 7 after all—build wealth and give!)
When you make a will, you can leave bequests to as many people and organizations as you want. That can be a lot of gifts, so it’s important to know what types of bequests to choose and how they work. So let’s dig in!
Types of Bequests
Think about the last gifts you gave your family. Maybe you picked out a birthday present for your child or an anniversary gift for your spouse. Maybe you gave your parents Mother’s Day or Father’s Day presents. Maybe you shopped for the whole family at Christmas. You chose those gifts based on who the recipient was, what they wanted and what the occasion was.
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Bequests work the same way. You want to make sure you’re using the right type of bequest to leave the right legacy for each of your loved ones.
There are five main types of bequests: general, demonstrative, specific, residuary and charitable. Charitable gifts are a little different from the others, so we’ll go over them in more detail later. For now, let’s cover the first four types.
General bequests are financial gifts that come out of the estate’s general assets, but not from a specific source. For instance, Tracy has an estate worth $700,000 and leaves her son Jake $100,000. That money could come out of her retirement account, or it could come from selling the house or other assets. The $100,000 can come from any part of the estate—just as long as Jake gets his inheritance. These bequests of cash can also be called pecuniary bequests.
But not all general bequests are pecuniary. You can also leave a general bequest that’s worth a certain amount, such as “assets totaling $150,000.” Your loved one might receive land, vehicles or other valuables that are worth $150,000. Or they might get a mix of cash and property as their inheritance.
Demonstrative bequests are financial gifts that come from a specific source, like a certain bank account or retirement account. Leaving your spouse all the money in your 401(k)? That’s a demonstrative bequest. Giving them your life insurance payout? So is that.
Now there’s one big hiccup that can happen here: If the beneficiary named in your will conflicts with the beneficiary listed on the account or insurance policy, then the money goes to the beneficiary on the account or policy—not to the person you named in your will. So make sure your will, accounts and policies all match.
Specific bequests are when you give a piece of physical property to a particular person. Your will could say, “I leave my gold watch to my nephew Jason.” Or, “I leave my living room furniture to my daughter Caroline.” These are the types of bequests people most often think of—the kind where you’re leaving your treasured belongings to a treasured person.
When something is residual, it’s left over after the main part is gone. So residuary bequests are gifts that get distributed after your debts are paid and all other bequests have been doled out. Usually, residuary bequests are listed as a percentage, because it’s hard to know the exact amount of the estate that will be left at this point.
So let’s say Paula and Jim have five grandchildren. Their will could leave residuary bequests of 20% to each of their grandkids. So those five people would split what’s left from the estate after any general, specific and demonstrative gifts are paid. Each grandchild could get $5,000, or they could get $50,000—depending on how much Paula and Jim left in those other bequests.
Debt can also impact residuary bequests. The more debt you have, the more money will have to be taken from your estate to pay it off. And that means less money leftover to give gifts. (That’s another big reason we want you to be debt-free!)
How Bequests Work
You’ll choose the type of will you need and simply write your bequests into it. When you pass away, your will goes through probate—the process that handles paying off any debt you have, settling legal matters and distributing your assets. Your loved ones will most likely get their bequests at this time.
That said, bequests can take longer to distribute if you make them conditional or executory.
A conditional bequest is just what it sounds like: It has a special condition attached to it. These are basically bequests that say, “This person gets this gift if . . .” You could decide that your cousin Chris can have your truck if he stays sober for more than a year. Or that your daughter Callie gets an extra $50,000 if she uses it to pay off her student loans.
An executory bequest is a bequest that says, “This person gets this gift after . . .” Most executory bequests involve important life events or set age limits so that beneficiaries will be old enough to (hopefully) handle their gift maturely. That’s why you might give your niece Nicole 10% of your estate after she turns 25. Or you might let your son Josh move into your house after he marries his fiancée Katherine.
You can make any type of bequest executory, conditional or even both. But there are some things to think about before you do this.
First, know that adding these caveats to your bequests can really slow down the probate process, because your beneficiary can’t take ownership of their gift until they meet the requirements. And not only do they have to wait, they could also delay residuary bequests for other beneficiaries. (Remember, residuary bequests come from what’s leftover—but there can’t be any leftovers until the other types of bequests are handed out.)
In some cases, it could take months or years for someone to receive a conditional or executory bequest. That’s a long time to keep your residuary beneficiaries waiting. And it’s a long time for your executor to be handling your estate’s business, so make sure they’re prepared for and comfortable with that level of responsibility.
You can speed up the process by setting a time limit—something like, “Joey will get $50,000 for his college tuition if he enrolls in classes within six months of my passing.” Then if Joey doesn’t get his rear in gear and get into school, the money reverts to the estate and can be distributed with the residuary bequests.
But do you see how complicated that got? You make one rule and then—bam! You need three more rules just to make it work. And that brings us to our second warning about conditional and executory bequests:
Think carefully about the conditions you’re setting. Are you trying to control a loved one from beyond the grave? If so, why? Sometimes it’s better to choose a beneficiary who can accept your gift free and clear than to give a gift that has more strings attached than a puppet.
And if you do go ahead with the condition, make sure you let the beneficiary know in advance so there are no unpleasant surprises after you pass away.
Remember all the way back at the beginning of this article when we said there was a fifth type of bequest? Well, it’s time to meet the charitable bequest!
What Is a Charitable Bequest?
Charitable bequests are gifts that you leave to a charitable organization or cause, instead of to a person. And you can turn any type of bequest into a charitable gift. Here are some examples:
- General charitable bequest: Rob and Carla leave $30,000 to their church.
- Demonstrative charitable bequest: Bob leaves $10,000 from his savings account to an organization that builds homes for impoverished families.
- Specific charitable bequest: Maya gives her tractor and tools to a horse rescue.
- Residuary gift: Mark and Becky leave 25% of their estate to a nonprofit that helps families pay for adoptions.
A lot of charitable bequests are residuary, because most people want to give gifts to their close family and friends first. But as you can see, you can make any type of bequest charitable—so you can give great gifts to your favorite charities right alongside your loved ones if you want!
Benefits of a Charitable Bequest
Charitable bequests used to be popular because they came with some big tax benefits. People would leave a lot of money to charity, and that money would no longer count toward the value of their estate. Since the estate’s value was lower, their loved ones wouldn’t have to pay estate taxes.
Then the 2017 Tax Act made it so that most people are exempt from estate taxes. In 2021, you’ll only pay estate taxes if your estate is worth $11.7 million for an individual or $23.4 million for a married couple.1 If your estate is worth less than that (which is most estates), you won’t have to pay estate taxes anyway—meaning there won’t be any tax breaks from leaving charitable bequests in your will.
But there are still benefits to leaving charitable bequests. The biggest one is that you can continue to support a cause you care about even after you’re gone—whether you want to protect the environment, build schools in developing countries, help connect kids with their forever families or anything else. A charitable bequest lets you leave a legacy that does lasting good in the world. And that’s a gift worth giving!
How to Make A Charitable Bequest
Making a charitable bequest works just like making a bequest to an individual: Write in your will what the gift is and which charity it’s going to. If you want to change the gift, revoke it, or add another charity, you can easily revise your will.
The most important part of making a charitable bequest isn’t about all the legal stuff or your will. It’s about picking the right charity. Make sure you find a reputable charity that makes its financial information public—that way you know that your gift is actually going where you want it to go.
Here at Ramsey, we have the Ramsey Foundation to investigate how charities are run and to make sure we agree with their principles. (Like not borrowing money!) It takes some extra work, but it’s worth the time because we can give to these charities with confidence. And we want you to be able to do the same!
Whether you’re giving to a charity or you just want to leave a good legacy for your loved ones, bequests can help you do that. But to make a bequest, you first have to get a will! Your will lets you lay out all the gifts you want to give so that you can have peace of mind knowing your loved ones’ futures are set—all because you took the time to plan ahead. Now that’s living like no one else.