Posted July 25th, 2014

Estate Settlement Dos and Don’ts, Part 2

by Tamara Lane-Wilson

In the May issue of Give & Take, Tamara Lane-Wilson, a market development consultant based in Sharpe Group’s Washington, D.C. office, shared some of the best practices she developed during her years in estate administration at two national charities. This month, she shares some estate settlement “don’ts”—practices to avoid when handling bequests, trusts and other estate settlement issues for nonprofits.

Common mistakes

It is important to keep in mind that your nonprofit will often not be the only charitable beneficiary listed in a donor’s estate. Sometimes several nonprofits will each receive a predetermined amount, which may be the same for each charity or may vary widely (for example, $10,000 to Charity A, $5,000 to Charity B and $1,000 to Charity C).

More often, however, a donor will designate that the remainder of the estate or a set amount should be split among several charities (for instance, $16,000 to be split equally among three charities). In such cases, it is critical that all of the charities work together where possible in order to achieve their mutual best interests.

Receipt and release forms

In my experience, when my organization shared a donor’s estate with other nonprofits, I sometimes found that other charities would be in such haste to deposit distribution checks that they would do so before reviewing the document, conducting inventory or waiting for final accounting. They frequently would also sign a receipt and release form before conducting due diligence, often to their detriment and possible enrichment of other charities.

While the laws vary from state to state, when signing a receipt and release form the charity accepts responsibility for what it has been given and may be waiving rights to accountings and other duties of the executor. Such forms are often used by executors, financial advisors and personal representatives as a way to minimize their liability should there be any errors in the distributions or potential legal issues after closing the estate.

It is not uncommon for receipt and release forms provided with partial distributions prior to the closing of an estate to include language stating that the charity will refund the distribution if the estate needs it down the road.

Signing the form makes it very difficult to obtain relief in the future if something is incorrect. In some cases, charitable estate administrators who may be encouraged to accept checks that accompany the release forms will dutifully and promptly sign and return the forms to the executor without taking the time to read them carefully or consult counsel.

Final accounting

Some charities fail to carefully review inventories that are provided as part of the final accounting for the estate. If the final accounting is not properly examined, the organization could potentially lose funds it would otherwise receive.

Personal representative fees and expenses are part of the final accounting. Don’t trust that the estate representative will always be competent and upstanding. In some instances, personal representatives may overpay themselves, report inaccurate numbers of hours or billing rates or include expenses that are not necessarily related to the estate’s needs or requirements.

Hesitancy can result in lost funds

Nonprofits should not settle for incomplete files or missing documents. The executor has a legal obligation to provide the charity with proper documentation, and you can request a copy of any document related to the bequest. If the executor or personal representative is hesitant to provide it, you can request a copy that has been redacted with other names, numbers and specifics blacked out. You may also request the portion of the document that names your charitable institution.

Your duty to the donor

Overlooking any of the issues raised here can result in losses that may not be substantial in a particular case but can become very significant over time. Most importantly, don’t forget that as a representative of the charity that a donor chose to elevate to the status of a family member, you are in essence the steward of the donor’s gift. You have an obligation to make sure your charity receives the gift your donor envisioned and intended.

 

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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