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Bequest Management

National Organizations with Local Affiliates: A Growing Threat to Bequest Revenue – Part 2

March 10, 2022
National Organizations with Local Affiliates: A Growing Threat to Bequest Revenue Part 2

The hypothetical cases in part one of this posting illustrate how affiliate bequest questions arise.  But why do they arise?  And how can they be avoided or solved?  This posting addresses those issues.

Do Wills/Trusts Frequently Misdescribe (or Ambiguously Describe) Charities, or Is This Just an Occasional Problem?

The issue is widespread.  We deal exclusively with estates involving charitable beneficiaries, and we find some kind of identification issue in at least 20 percent of the cases.

But We Never Hear of These Cases.  Why Do They Never Make it to the Appellate Courts?

With good advocacy, many of the issues can be ironed out by the parties, sometimes in conjunction with the administrator and/or the probate courts.  Sadly, deserving charities that adopt a passive approach to bequest management can lose money – lots of it – and never even know it, as Trustees and other estate representatives might resolve ambiguities on their own.

Are These Mistakes Just the Product of Carelessness?  Or Are There Systemic Causes?

Probably some of both.  Our impression – informed, but still speculative – is that a handful of factors are largely responsible for an increase in problematic designations.

Less Communication Between Testators and Estate Planners

In many or most cases, estate planning is no longer being handled by the family lawyer who knows the testator, but by specialized practitioners who have invested heavily in computer software capable of producing good-quality documents in very little time.

The software relies on “intake” questionnaires completed by the testator, often with little or no assistance from the lawyer.  Templates are sometimes laden with boilerplate that could have negative implications.  It is easy to see how this approach could easily facilitate an incomplete or ambiguous designation of a charity.

Decline in Direct Mail Giving and Rise in Online Giving

A will that was drafted twenty, thirty, or even forty years ago almost always provides a mailing address for charitable beneficiaries.  A good address eliminates most ambiguities.  Those older wills were drafted at a time when virtually all charitable gifts were made by direct mail.  Typically, a testator would have many documents that included the mailing address of the charity.

Indeed, many donors memorized those addresses through years of mailing their gifts.  Online giving has cut the link between charities and their physical addresses.  Many donors have no idea where their favorite charities are actually headquartered.  It is therefore no surprise that addresses are often omitted in wills.  Instances of drafters of testamentary instruments, or their staff, misidentifying a charitable beneficiary because of a flawed internet search are increasingly inevitable.

Location-Sensitive Internet Searches

To be fair, many conscientious estate planners recognize that designation of a charitable beneficiary should contain an address.  What better place to find a current accurate address than the Internet?  Unfortunately, many search engines automatically produce the address of the most proximate location answering the description.  That fact, we believe, more than anything else, explains the frequent designation of local affiliates by testators who almost certainly intended to benefit a national parent.

Does the Court Have the Ability to “Override” the Plain Language of a Will?

It sounds like many of these issues could be solved if estate planning attorneys were more proactive in clarifying testator intent.  If there is evidence that the will does not reflect the testator’s true wishes, shouldn’t the court have the ability to “override” the plain language of the will?

While drafting attorneys must share the responsibility for imprecision or ambiguity in a will, they are certainly not the sole cause of the problem.  Courts will generally not “reform” a will for attorney error unless the mistake is undeniably clear from an examination of the will without reference to any other evidence.  Such mistakes are sometimes referred to as scriveners’ errors.

A good example would be a misplaced comma or period: “I leave to my beloved wife the sum of $1.000,000 in the hope that she will live a comfortable life.”  Most courts would not limit that bequest to $1.00.

In many cases, however, significant and fairly obvious mistakes are allowed to stand.  In Connecticut Junior Republic v. Sharon Hospital, 188 Conn. 1, 448 A.2d 190 (1982), the drafting attorney authored a “technical correction” second codicil to a will and, in the process, accidentally eliminated the testator’s intended charitable beneficiaries and reinserted charities from an earlier estate plan.  The testator signed the codicil without careful review.  The court refused to permit “extrinsic evidence” of the error (which would have certainly included the attorney’s admission of the mistake) and enforced the will as modified by the erroneous second codicil.

Is It Necessary to Inform the Executor If the Parent and Affiliate Reach an Agreement to Divide the Money?

Let’s suppose the will includes the address of a local affiliate of a national charity.  The executor will probably want to distribute the gift to the local organization.  If the parent and the affiliate reach an agreement to divide the money in some way, is it necessary to inform the executor?  Does that agreement have to be reduced to writing?

In the case described, it would be easier if the executor made the distribution to the local organization, leaving the division with the national entity to be made after the fact.  Most executors will not assume responsibility for “approving” a sharing agreement such as the one described.  A formal written agreement is not an absolute necessity, subject to the guidance below.

CCK ANALYSIS:  We are sometimes asked if, in a case such as the one described immediately above, it is necessary to inform the executor about a behind-the-scenes arrangement between two charitable entities.  Although unique circumstances might mandate disclosure, we believe that a private agreement is acceptable in most cases.  It is critical that any recipients of a bequest honor any conditions imposed by the donor and, in the absence of such restrictions, use the gift in a way that is consistent with the testator’s likely expectations (i.e., in support of the charity’s mission and not for some far-flung unusual project).  Sharing the gift with the national affiliate, or visa versa, is typically well within the permissive uses anticipated under a general use gift.

Transactions Should be Memorialized

Although we do not believe that a formal settlement agreement between a parent and an affiliate is necessary, we do strongly recommend that the transaction be memorialized for record purposes, with recitation of the following:

  • Name of testator;
  • Language designating the charity;
  • Value of gift;
  • Reasons why the language and/or other evidence supports award of the bequest to either charity (could be the listed address, donor contribution history, donor volunteer history, etc.);
  • Agreed-upon division and rationale for same; and
  • Intended use by each recipient and brief explanation of conformity of same to donor restrictions and/or likely expectations

We hope that you found the above examples and discussion to be helpful and interesting.  As you would expect, the above examples are only a small sample of the issues that arise in managing the settlement of bequests, and this discussion is not exhaustive on the topics nor is it legal advice.