Definition
A bequest is a term used in finance and law to denote the act of giving or leaving personal property or financial assets such as stocks, bonds, cash, and real estate to a beneficiary through a will or estate plan upon the owner’s death. It is a form of planned giving that allows a person to express their wishes on how their assets should be distributed. Bequest, in general, provides an important revenue stream for charitable organizations.
Key Takeaways
- Bequest refers to assets or properties left to individuals or organizations through a will or estate plan after the owner’s death.
- The person to who the bequest is given is known as a legatee or beneficiary, while the person leaving the bequest is typically referred to as a testator or decedent.
- Bequests can include various forms of assets, such as money, real estate, tangible personal property or even shares in a business, and can be used as strategies in estate planning and tax planning.
Importance
Bequest is a vital finance term because it denotes the act of giving or leaving personal property or financial assets such as stocks, bonds, cash, and real estate to a beneficiary through a will or an estate plan. It plays a significant role in wealth transfer, estate planning, and tax planning.
It allows individuals to control the distribution of their assets after their death, ensuring that their wealth is allocated according to their wishes. Therefore, understanding the concept of bequest can help individuals to plan better for their financial future and create a lasting financial legacy.
Bequests can also have significant tax implications, potentially reducing the tax burden on the estate or its heirs depending on the applicable tax laws. Hence, the term “bequest” is a critical component in the realm of personal finance and estate management.
Explanation
A bequest serves as a mechanism through which an individual can transfer assets to others after their demise. It is a critical component of estate planning and is typically facilitated through a legal document known as a will.
The main purpose of a bequest is to ensure that the assets of the deceased are distributed as per their wishes. It gives the person the power to decide who should inherit their assets – which may include money, real estate, personal possessions or investments – after their passing.
The use of bequests is not limited to just passing on assets; it can also serve to donate to a chosen charity or foundation. This is a means of contributing beyond their lifetime to causes they believe in.
Importantly, it can also be an effective way to mitigate potential inheritance tax, as bequests to charities are often exempt from this. From an individual’s perspective, bequests are an integral part of legacy planning, allowing one to leave a lasting footprint beyond their existence.
Examples of Bequest
Inheritance of Property: An example of a bequest can be seen when a person passes away and leaves their home to their child in their will. This property is a part of their estate and is transferred to the child as the benefactor.
Artwork Donation: Another example of a bequest could be seen in the art world. Many museum collections are formed from bequests, where art collectors and enthusiasts in their will, gift their art pieces to the museum. For instance, the famous art collector Peggy Guggenheim left her extensive collection to the Solomon R. Guggenheim Foundation in her will.
Charity Donations: Bequests also commonly occur in the form of charitable donations. For example, an elderly person might stipulate in their will that a portion of their wealth is to be given to a particular charitable organization such as Red Cross, Cancer Research Foundations, Educational Institutions or others, after their death.
FAQs About Bequest
What is a Bequest?
A bequest is the act of leaving assets or property to a beneficiary as stated in a will or testament. This is often a part of estate planning.
What types of Bequest exist?
There are several types of bequests, such as specific bequest, general bequest, residuary bequest, and contingent bequest. Each type signifies different conditions, items left and to whom things are left to.
How does a Bequest affect taxes?
In many jurisdictions, bequests are subject to inheritance or estate taxes. The laws may vary, so it’s advisable to consult a tax professional or an attorney who specializes in estates and trusts.
Can a Bequest be contested?
Yes, a bequest can be contested if it’s believed that the will or testament was signed under duress, or if the testator was mentally incompetent at the time of signing. It’s recommended to seek legal counsel in such circumstances.
What is the difference between a Bequest and a Legacy?
Both terms are often used interchangeably. However, traditionally a bequest refers to leaving a personal estate or property in one’s will, while a legacy is often used when leaving money to individuals or entities.
Related Entrepreneurship Terms
- Will
- Inheritance
- Legatee
- Estate
- Testator
Sources for More Information
- Investopedia: The site has a vast treasury of information on almost any financial topic, including bequests.
- Nolo: Provides in-depth legal information on a variety of topics such as wills, trusts, and bequests.
- IRS: The Internal Revenue Service of the United States has plenty of information related to taxes on bequests.
- Khan Academy: Known for its informative data in multiple fields and subjects, it can offer a helpful understanding of what a bequest is in finance.
