Posted February 1st, 2015

When a “Will” Means Maybe

Yes, No, MaybeNow may be the time to take a more aggressive posture in developing, cultivating and safeguarding bequest expectancies.

Experienced fundraisers know the importance of bequests to their overall success. According to Giving USA, bequests accounted for more than 10 percent of individual giving in 2013. Over the past decade, bequests have provided as much as 25 percent of gifts from individuals to institutions of higher education.

Given these figures, successful organizations know that bequest development efforts now, as never before, must be managed professionally, and skilled development personnel should be consistently monitoring this source of revenue. Without close attention, outside factors can sometimes reduce or eliminate an intended bequest without the donor’s knowledge. Let’s look at just a few of the more common challenges as well as suggested actions.

Tax law changes.

Given recent estate tax changes, over 99 percent of Americans will no longer owe federal estate taxes. In some cases, wills have been drafted with formulas that leave to charitable purposes the amount that in the past would have been subject to estate tax. Such wills can unintentionally “disinherit” charitable interests when donors are unaware of the implications of these changes. Also, since 1982, a married person who would otherwise be subject to estate tax can leave everything in his or her estate to the surviving spouse free of federal estate tax as well as the death taxes of most states.

Thus, no tax incentive exists for charitable bequests from the estate of the first spouse to die; and in any event, most persons would prefer to make all assets available for the use of the survivor. The result has been increasingly to delay charitable bequests until the death of the surviving spouse, if at all.

Suggested action.

Keep donors apprised of tax law changes. Use communications designed to point out that changes in their personal life or in the law may make it advisable for them to review and update their plans.

Additionally, make sure a staff member maintains good relationships with the widows or widowers of supporters who have passed away. Not only is this the right and respectful thing to do, but proper attention can also result in significant bequests in memory of the donor at the death of the surviving spouse. If appropriate, you may also suggest that married persons who are planning their estates provide for bequests in qualified terminable interest property (QTIP) trusts or other provisions to protect their spouse at the time of their passing.

Greater attention to probate assistance.

Some development officers fail to fully realize that a will typically acts only on assets that pass through probate. If a donor places all property in revocable living trusts, retirement plans, joint ownership, annuities with insurance companies and/or uses other non-probate distribution strategies, you may receive nothing in the form of a bequest, even if the donor had a valid will naming your institution. A bequest can be eliminated unwittingly by poorly coordinated estate planning.

Despite the critical role of bequests in the health of most programs, many fundraising professionals put little effort into maintaining ongoing relationships with these special donors. They view a bequest expectancy as a “sure thing” and fail to appreciate how fragile such gifts can be. Those who put their energy into stewardship of these relationships, however, have reaped tremendous rewards as a result. Some organizations will be unpleasantly surprised in these instances, especially when they have recognized donors for, and are planning to receive, sizable bequests.

Suggested action.

While keeping in mind the need for tact and discretion, attempt to discover who is planning a bequest by will. Ensure bequest donors are informed about the importance of contingency planning by including alternative or “substitute” charitable dispositions in revocable living trusts, retirement plan remainders, insurance beneficiary designations and other non-probate property dispositions should adequate funds not remain in their probate estates.

Turnover of assets in estates.

There can be problems in receiving particular assets that have been left to charitable interests even when donors dispose of their entire estates through wills. Not uncommonly, donors leave real estate, artwork, securities and other particular properties to charity.

Increasing life spans make it more likely that a donor will have sold or given away one or more of these specific assets prior to death. The donor may not have intended to disinherit the charitable interest, but little can be done to save the bequest without expensive, time-consuming litigation.

Suggested action.

If possible, try to ascertain the form of each bequest of which you are notified. If the donor is planning to leave a particular parcel of real estate, artwork or other property, you may tactfully suggest that a provision for a “back-up” bequest of cash or other property be made in the event the asset is no longer owned at death.

Apportionment of taxes in large estates.

As fewer and fewer estates are subject to federal estate taxes due to increasing estate tax exemption levels, determining what assets will be used to pay such taxes is no longer a challenge except in the largest estates. For such substantial estates, however, estate taxes can be a valid concern. In addition, 19 states and the District of Columbia levy state estate taxes.

In some states, if there are no instructions to the contrary, taxes due come from the residue of the probate estate and take away from the assets that may have otherwise been used to satisfy charitable bequests by will. In the extreme case, all assets in the estate of a second spouse—which might have been left to charity through a will—could be required to pay the estate taxes due on assets in a marital trust that ended up with the children from the first marriage of the predeceased spouse. So, the children might inherit the entire marital trust free of estate tax, while the second spouse’s assets that were intended for charity are used to pay the tax on their inheritance.

Suggested action.

Especially with very large bequests from wealthy donors, try to arrange for the tax apportionment issue to be raised in discussions with the donor, the donor’s advisors or others. The stakes can be extremely high; therefore, you may wish to involve your institution’s counsel.

Changes in life circumstances.

As noted in “Timing of the Last Will and Testament”, the majority of wills that include charitable bequests are executed relatively late in a donor’s lifetime. Many life events can occur during the decades that may pass between inclusion in a 60-year-old’s will and the donor’s eventual passing.

Suggested action.

Changes in family makeup, finances, charitable interests and other factors make it important to maintain relationships with bequest expectancies over time. If possible, contact all of these individuals at least once a year, inviting them to events or simply updating them on progress or developments at your organization. Without ongoing contact, these donors may lose the important emotional connection that led to the bequest expectancy in the first place.

Unpleasant surprises such as these can occur and result in less bequest income than you expected―and less than some of your most highly motivated donors intended. Other challenges can also arise from poorly drafted wills, obsolete wills or ones that were not written in light of the overall estate plan.

All of these suggested “defensive actions” require that charitable entities take a more aggressive posture in discovering, developing, cultivating and safeguarding bequest expectancies. This requires steady contact with those who have already made, or are considering including, provisions in their wills. A relatively small effort in the maintenance of a bequest today can yield tremendous returns in the future.

Sharpe Group offers a range of publications designed to keep your donors apprised of the most effective ways to make charitable gifts, including bequests. Visit www.SHARPEnet.com or call 901.680.5300 to learn more.

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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