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Bequest Management

Why Bequests Need Your Organization’s Attention Now

Why Bequest Need Your Organization’s Attention Now. people working on computer together

Many non-profits rely on revenues from giving to do their work and fulfill their missions.  So, emphasis is more commonly placed on developing living donors in order to generate cash in the moment.  Planned Giving, on the other hand, requires more patience, and a longer-term perspective.  Planned Giving gifts are becoming increasingly meaningful, as they provide donors with significant tax advantages, while also allowing them to both support a charitable organization and leave a legacy by which they can be remembered.  However, since the return on investment of these planned gifts cannot be immediately realized, gifts from living donors that result in an instantaneous exchange of funds often, understandably, take precedence.

Planned Giving is an ongoing process that requires constant attention throughout.  Not only must non-profits devote time and resources to developing planned gifts and cultivating future donors, but they must also remain involved in the gift distribution process.  Further, gifts may not necessarily come in the form of a check; a gift could be anything from real estate to mineral rights to shares in a company.  Those working in Planned Giving must work with the personal representatives (administrators, executors, trustees, custodians, and their attorneys) who oversee the management of the donor’s gifts.  Personal representatives have a fiduciary duty to be sure that the donor’s intentions are followed, but planned giving offices are also responsible for following up and ensuring accurate distributions.

Although it may seem simple, the process of tracking a gift from start to finish requires much attention and care.  Every bequest represents the dying wish of the donor, and it is important that it be handled and distributed correctly.   More than half of bequests received by non-profits are from donors who made no living gifts to the charity, and who never notified the charity of a planned gift.  In other words, they are a new donor about whom the non-profit has no information.  When the recipient of a bequest receives word of a donor’s passing, they should have a system in place to track the incoming gift and record all pertinent information.  Details that should be recorded for new donors include:

  • A donor’s name and personal information
  • The assigned personal representative
  • The gift instruments
  • Gifting language
  • The anticipated gift amount(s)
  • Any custodians of the account
  • Names of other beneficiaries
  • Probate documents
  • Upcoming dates and deadlines

In addition, it is crucial that the non-profit secure a summary of the gift, with an analysis of any potential issues that would interfere with the donor’s full intent to give to the charity.  Following the receipt of a gift, as planned givers represent a developing legacy of giving, it is important that an acknowledgment and thank you be sent promptly to the donor or manager of the estate.

There are several ways in which non-profits can gather all the information noted above.  Typically, the process begins with a phone call to confirm the identity of and contact information for the personal representative.  Next, a uniform but comprehensive request for documentation should be sent to the personal representative.  Along with this request, you should provide information about your charity and copies of pertinent documents that the personal representative will need.  Not only will this help to make their duty to honor the donor’s wishes easier to fulfill, it also alerts the representative that you are involved and should be notified of any events, disputes, challenges, or impediments.  If there are attorneys identified for the personal representative or any other parties, such as other beneficiaries, heirs at law, parties at interest, or custodians of funds or assets, you should, in writing, provide them with your contact information and request that they notify you of any events that may impact your charity’s rights.

It is important to remember that while personal representatives, and by extension their attorneys, are fiduciaries with an obligation to abide by the donor’s intent and protect the interests of all appropriate beneficiaries, they are also busy people whose focus is being pulled in multiple directions.  Prompt communication in a clear, concise manner is a good practice that can help to prevent potential delays or setbacks, as well as significantly improve the certainty and speed with which most bequests are processed and paid.

The key to successful bequest management is an active approach and a clear, comprehensive plan.  While many charities develop and maintain robust plans for Development or Planned Giving, plans for managing bequests during the distribution process are often underdeveloped or nonexistent.  A bequest management plan should include at least the following components:

  1. Assignment of the right personnel, with responsibility and accountability.
  2. Personnel must be supported by and follow well-constructed policies and procedures to ensure that necessary steps are taken, and necessary attention is paid to each bequest.
  3. All matured bequests must be documented and organized in a secure database and should be actively revisited by a qualified team member.
  4. That team member should have sufficient authority to engage personal representatives, financial custodians, probate clerks, and attorneys.
  5. Responsible personnel must understand not only the tenets of Planned Giving, but also the fundamentals of trusts, estates, and probate. Expertise is not necessary, but core competency is critical.
  6. Assigned personnel must have access to others with the authority to make decisions in atypical or high-value cases, and signature authority for making and settling claims, including but not limited to: claims on custodial accounts; settlement agreements for disputes; releases on proposed distributions, inventories; and know when to access those authorized teammates.
  7. Personnel will need ready access to those decision-makers, as well as the attention of an attorney to consult on matters outside the scope of the personnel’s knowledge, experience, and expertise.

Bequest Tricks of the Trade: Key Things to Remember

Get it in Writing

When managing a bequest, it is imperative to ask for and record the address, phone number, and e-mail address of each person or entity with whom you are in contact relative to your donor’s gift.  Phone calls are helpful for introductions, but they should always be confirmed in writing, as should all other substantive communications.  Comments regarding how much an estate is worth, dates for hearings, deadlines that could affect your rights, and descriptions of gift language should all be documented.  This includes collecting copies of all relevant documentation.

Read Through Everything

This may seem obvious, but it is important to read all documents in their entirety.  It can be commonplace to assume what a document says based on what we have been told or what we think it should say.  Commonly, a personal representative or their counsel will send a proposed distribution to the gift recipient for approval.  Without reading the documents fully, it is impossible to know the specific details of the gift, if the signature appears legitimate, or if changes are consistent with the demonstrated intentions.

Don’t be Afraid to Ask Questions

Sometimes, gift instruments may contain vague or confusing language and probate proceedings may become complex and adversarial.  Because they are receiving a generous gift, many charities hesitate to question or challenge any aspect of the bequest to avoid potentially seeming ungrateful or causing any offense.  As a gift recipient, a charity should acquire and carefully read all operative documents, as well as ask questions, in order to ensure they completely understand the bequest.  Personal representatives and their attorneys are responsible for answering these questions and addressing any ambiguities or inconsistencies.  Ultimately, they have a fiduciary duty to honor and carry out the donor’s wishes.  Open and honest communication should exist between all parties throughout the entire process.

Bequest Management Dates and Deadlines

A key component of successful bequest management is an awareness of all pertinent dates and deadlines.  From noting the date a document was received in the mail to actively tracking any deadlines outlined in the gift language, it is critical to pay attention to these details in order to protect the wishes of the donor and ensure your charity receives the intended gift.  For example, a deadline for a charity to respond to a petition to appoint an administrator could seriously impact a gift if the donor passed away intestate with no appreciable estate assets, and a family member suddenly petitions for such status and names your charity as an interested party.

Your charity could be an interested party if another asset (e.g., account, 401(k), IRA, brokerage account, life policy) named your charity as beneficiary, and the seemingly innocuous petition could signal an attempt to challenge those beneficiary designations.  A failure to respond to this petition could mean the loss of the largest asset bequeathed by the donor.  Not only should the personal representative who received authority (from the beneficiaries directly or via court order) distribute funds by a defined date, but your charity also needs to know, record, and adhere to that date.

Bequest Intentions vs. Actions

If you are fully informed and actively monitoring your expected and incoming bequests, it is much less likely that an interested third party will be tempted, much less act, to interfere with the donor’s gift to your charity or other beneficiaries.  Estate administration is a sensitive process and all actions taken to honor a donor’s wishes should be handled with the utmost care and attention.  Scheduling regular check-ins, requesting updates in writing, and requiring written responses are some of the most effective means by which to avoid delays, confusion or loss of bequests and uphold the donor’s intentions.  Cases must be carefully reviewed with an eye toward capacity and undue influence.

Don’t Pay Taxes Twice

Donors remember charities and non-profits in their estate planning for various reasons.  The charity may have played an important role in the donor’s life, or in the life of a family member.  Or perhaps the charity’s mission is a priority for the donor.  These reasons could be complemented by the fact that the gift distribution is not subject to federal taxation.  A charity should receive a donor’s gift tax-free, as the government should have taxed that income as it was earned by the donor.  More often than should be the case, personal representatives pay federal tax on the charity’s share, when none is due, meaning the government gets a second sum of money to which it is not entitled.

Personal representatives are often unaware that funds distributed to your charitable organization are not subject to federal taxes, and as a result, will deduct taxes from your charity’s share.  This error is especially prevalent with IRA accounts, 401(k) accounts, and 403(b) accounts, where there is a 20% federal withholding that is deducted and paid to the government.

It is equally common that lawyers representing the personal representative, or accounting firms preparing distributions and accompanying estate tax returns, mistakenly apply the tax withholding to the portion of a bequest belonging to the charity.  Subsequently, the charity is left to consider filing a claim against the representative, attorney, or firm responsible for the error, though this is typically not worth the effort economically.  However, a $5,000 tax here and a $20,000 tax there can quickly add up to a substantial amount, so it is necessary to remain attentive and check for evidence of any unwarranted taxes in the proposed final inventory and proposed distribution.

Treat Small Bequests the Same as You Treat Large Bequests

Imagine a charity with $1 million per year in expected planned giving revenue.  Imagine that revenue comes from 50 gifts, and 25 of those gifts average out to $25,000 each.  That is $625,000, or 62.5% of the annual planned giving revenue.  It is important that those smaller gifts receive the same care and attention that the larger gifts ordinarily require.  Why?

First, it is important because those gifts, regardless of their amount, represent the donor’s wish and directive to support your charitable missions.  Second, the initial amount of the bequest may not actually be correct.  If your understanding of the amount of those smaller gifts is coming from a third party (e.g., personal representative, financial custodian, attorney for third party) you are taking their word that the amount is accurate.  Unfortunately, they may be, and sometimes are, gravely mistaken.  Therefore, it is imperative that your organization take an active approach in honoring the wishes of your donors.  Third, paying attention to the smaller gifts and ensuring that the donor’s intentions are followed demonstrates to the donor’s family, other beneficiaries, attorneys, and personal representatives that you take these gifts seriously and that your charity is passionate about honoring their donor’s intention to support your mission.  This pays future dividends.