The following article is Part 2 of a two-part series on non-probate estate settlement issues. Part 1 was published in the September 2017 Give & Take. Click here to read it.
Last month, Give & Take began a conversation with Andy Fussner about the challenges of settling nonprobate estate gifts, which often come in the form of a beneficiary designation from a retirement plan, life insurance policy or investment account. As an attorney who is Vice President of Estate Settlement at the American Heart Association, Mr. Fussner has noticed a rise in both the number of such gifts and the problems charities often face in managing the receipt of these funds. Last month, Mr. Fussner outlined some of those challenges; this month he shares additional challenges and some of the best ways he has found to cope with this aspect of the estate settlement process.
Give & Take: What are some other problems associated with non-probate estate settlement?
Fussner: In addition to the certification requirements and regulations I have already mentioned, I’d say our most common problems have to do with notification. Sometimes an executor or trustee will give us a heads up that a gift will be received from a retirement plan or other vehicle, but other times we are solely dependent on receiving a notice from the financial institution.
Even when we are notified, it can be difficult to obtain information about the donor (especially if he/she was never known to us). We are not usually provided with the original beneficiary designation form even if we ask for it, so we often have no information on a donor’s place and dates of birth and death or home address.
Having this information can be important for estate settlement. The charity is often asked to provide a death certificate for the deceased, but these can be difficult to acquire without that information or a way to prove a relationship with the donor. If we are named to receive funds only if someone else has died before the donor (i.e. we are a contingent beneficiary), we may be asked to provide a death certificate for that person as well.
Give & Take: What are some of the best ways to smooth the settlement process?
Fussner: The number one thing I would suggest to charities is to create a corporate bequest resolution that will apply tothese types of testamentary gifts. The corporate resolution should identify an individual at the charity who is responsible for estate settlement and specify what actions that person can take and what he or she is authorized to do on behalf of the charity. The resolution should be reviewed and approved by the board each year and should be as detailed as possible.
For instance, it may say that the named individual is not only authorized to receive gifts from estates but can also open accounts and transfer stocks. Keep in mind, though, that you probably don’t want to give too much power to one person; it may be a good idea to require multiple signatures to ensure the charity’s protection (you have to decide how much of a trade-off you want to make between convenience and security).
Even if you have your corporate resolution in place, sometimes financial institutions want to use their own particular form or their specific language for a corporate resolution. In those cases, I usually end up calling the financial institution, explaining how we typically handle these situations and asking them to be flexible with us, or I simply handwrite on their form that we have adopted a substantially similar resolution that I attach therewith.
Give & Take: What other advice can you give to help speed up non-probate estate settlements?
Fussner: Act quickly when receiving paperwork. Some institutions put artificial timelines on getting things done, and it can take time to get death certificates, signature guarantees or the necessary signatures.
Also, if you are required to obtain a death certificate, try to coordinate with other named charitable beneficiaries (if you can find out who they are) to get a single death certificate, rather than everyone going their own way.
Give & Take: What is your best advice for handling potential roadblocks with financial institutions? I’m thinking specifically about the medallion signature guarantee “Catch-22” you mentioned earlier (see last month’s Give & Take).
Fussner: Most of these situations can be handled if you pick up the phone and start talking to people at the institution. The first people you reach may not be very experienced or may not have the authority to give you what you need. Be persistent, and make a note of the names and titles of the people you speak with. If you keep working your way up the chain of command, eventually you should reach someone who has the authority to be flexible in their requirements.
Give & Take: You mentioned earlier that the Know Your Client Rule effectively requires that you open an account with these financial institutions every time you are notified of a new bequest. Why can’t you just leave these accounts open?
Fussner: The entities would likely require us to maintain a minimum balance to keep the account open, and having open accounts with minimum balances at a number of institutions would lead to major accounting and auditing headaches. Frankly, it’s easier to keep opening and closing accounts. Plus, when you get enough of these gifts, you could be talking about having “holding” accounts at 50 or more institutions, and most CFOs wouldn’t be willing to do that.
Give & Take: It’s too bad we can’t have a preapproved list for charities so those organizations don’t have to jump through hoops every time they are left a bequest of this kind.
Fussner: That has been my suggestion too. It would be nice if the government could create a “clear list” that the institutions could check. Each charity could apply for special status and supply all the information that is needed, but that would only need to happen one time. After being approved, charities could simply provide their clearance number to the financial institution asking for verification, and the institution would then know the charity had been cleared in advance.
If that system existed, we could essentially go back to the old method with a simpler form, adding one line for the charity’s clearance number. I imagine it would save time and administrative costs for both charities and the financial institutions involved. Larger charities would probably be willing to pay the government an annual fee to accomplish this.
Give & Take: What other changes would you like to see made to the way non-probate estate gifts are settled?
Fussner: It would be helpful if financial institutions could develop forms specifically for charitable beneficiary claims. It would reduce the amount of paperwork and provide alternatives that are less time consuming for all involved.
On that note, I’d also like the financial institutions to develop beneficiary designation forms that provide sufficient space for donors to indicate any particular instructions related to the gift, such as indicating use restrictions or making it in honor or memory of a loved one. Sometimes the beneficiary designation is the only contact we will ever have with the donor, and we want to know we are honoring the donor’s wishes in the way he or she envisioned.
Give & Take: Do you have any additional thoughts?
Fussner: I would like to underscore that even though these gifts can be problematic for the charity, we certainly would not want to stop encouraging donors to give in this way. Making a charity a beneficiary of a retirement plan or life insurance policy is such a great way to give. It’s so simple for the donors. We just want to make it simpler for the charities as well.
