Bequests: What They Are and How to Set One Up

Bequests can help ensure that specific assets you own go to certain heirs. There are six types of bequests.
Connor Emmert
By Connor Emmert 
Updated
Edited by Tina Orem

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What is a bequest?

A bequest is a gift to another person, charity or institution according to the terms of a will or estate plan. Bequests typically transfer cash, accounts, real estate or personal property to the owner’s beneficiaries upon the owner’s death

Cornell Law School. Bequest. Accessed Feb 12, 2024.
. Bequests can be conditional, meaning they become effective if the beneficiary meets specific terms.

Traditionally, bequests refer to personal property and “devises” refer to real property (land), though the terms are mostly interchangeable now.

Types of bequests

There are six types of bequests:

  1. General bequests designate a specific quantity of assets to gift from the grantor’s estate. For example, a will might say, “I bequeath $15,000 to each of my two grandchildren, John and Jane Doe.” For general bequests, the gift typically comes from the estate’s pool of assets rather than from one specific account.

  2. Demonstrative bequests gift a specific quantity of assets from a specified account. For example, you could give a specific amount of cash from a savings account. Demonstrative bequests can also apply to brokerage accounts (e.g., “I bequeath my 200 shares of ABC company stock to my brother.”)

  3. Specific bequests are generally for specific property items; for example, “I gift my 2019 Honda Civic to my son, Bill.”

  4. Conditional bequests give assets to a beneficiary only if specific conditions are met. For example, “I bequeath $50,000 from my estate to my son John on the condition that he graduates from an accredited law school by age 35.”

  5. Contingency bequests are gifts that redirect to another recipient, such as a charitable organization, if the original beneficiaries die before the owner does or if they cannot receive the bequest for some reason.

  6. Residuary bequests are typically a percentage of whatever is left in the estate after all other debts or expenses are paid. For example, a will might say, “I bequeath the remainder of my estate to my four children to be split equally among them.” In this case, the children would each receive an equal share (25%) of the assets left in the estate. Residuary bequests are also often left to charitable organizations.

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How to make a bequest

To make a bequest, leave written instructions behind, typically in a will. A probate court may need to validate your will for the assets to transfer to their new owner.

Assets such as life insurance policies, retirement accounts and trusts have pre-established beneficiaries and can be transferred outside probate court.

Tax implications of a bequest

Marital deduction

Any assets or property inherited by a surviving spouse are generally exempt from estate or gift taxes due to the unlimited marital deduction, which allows married individuals in the U.S. to give their spouses an unlimited amount of assets without incurring gift or estate taxes.

Estate tax exclusion

The time it takes to settle an estate can vary greatly depending on complexity. IRS federal estate tax exclusion rules are based on the year of death, which may not necessarily be the same year beneficiaries actually receive assets. The federal estate tax ranges from rates of 18% to 40% and generally only applies to assets over $12.92 million in 2023 or $13.61 million in 2024.

Gift tax exclusion timing

The IRS may require a gift tax return for gifts over a certain exclusion amount: $16,000 in 2022 and $17,000 in 2023. Unlike the estate tax exclusion, the IRS rules for gift taxes are based on the year the gift is given

Internal Revenue Service. Frequently Asked Questions on Gift Taxes. Accessed Feb 12, 2024.
. There is no limit on how many gifts you can make in a year.

Charitable gifts

Any assets you bequeath to a charitable organization are exempt from estate taxes, provided the charity is a qualified 503(c) organization. There is no limit to how much you can donate to charities to qualify for this exemption — even if you leave your entire estate to charitable organizations.

Capital gains taxes

Although gift and estate tax exclusions can prevent beneficiaries from paying taxes immediately, they could owe capital gains taxes later if, once they inherit the assets, the assets produce income or the value increases, and the beneficiary then sells the assets. 

Crummey power

Beneficiaries must have what is known as “present interest” in any assets bequeathed to them to qualify for the annual gift tax exclusion. Present interest means the beneficiary can immediately use, possess and enjoy the property or income from the property.

Generally, trusts only allow beneficiaries to access funds or property after a future date. Under this arrangement, beneficiaries have “future interest” in the trust assets, jeopardizing the gift tax exclusion.

However, in 1968, Clifford Crummey won a landmark court case that effectively allowed irrevocable trusts to receive the gift tax exclusion by providing a temporary option to withdraw funds (typically 30-60 days) — sometimes referred to as “Crummey power” or a “Crummey trust” — thereby creating present interest in the assets even if no withdrawals occur. For this to work, you need to stipulate that the gift is part of the irrevocable trust when drafting the trust, and the annual gift cannot exceed the annual gift tax exclusion limits. Be sure to consult a qualified estate planning attorney first.

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