The gift planner’s job isn’t over once a donor who has provided for an estate gift has passed away. Estate settlement can be one of the trickier aspects of fund development and is one that should be handled delicately as it often involves far more than a monetary transaction. Questions about estate settlement matters are among the most common issues SHARPE newkirk clients raise.
Give & Take spoke recently with three of our consultants who have dealt with these issues as development professionals in the past before addressing them as consultants.
Give & Take: Can you summarize some of the more common occurrences that can result in a charitable beneficiary of an estate receiving less than they should?
John Jensen: One of the most common “leaks” that can occur is when excess fees are charged to an estate. An executor, administrator or personal representative, as the case may be, is entitled to reasonable fees for services rendered in settling an estate. Fees can also be paid to attorneys, appraisers, accountants and other professionals incident to the management of an estate. In some cases, an executor and attorney can be entitled to a fee determined under state law based on a percentage of the estate unless a beneficiary questions fees, in which case the fees must be justified. It is important that fees be carefully reviewed by an appropriate party, especially in cases where the entire estate is left to charity or other heirs receive fixed amounts and what remains is shared by one or more charities.
Laura Knitt: Charities should also consider the opportunity costs being borne by an estate in addition to the fees described above. Time is money. If a charity is due, for example, $500,000 under the terms of a will and it could earn an estimated return of 7% on its endowment, then it costs the charity nearly $3,000 a month for each month the receipt of funds is delayed. In my experience, a bequest of a specific amount is often received within one year or sooner, where it is not uncommon for it to take two years or longer to receive a distribution of all or a portion of the remainder of an estate.
Real estate can present another area of concern. If a charity learns that its bequest amount will be determined in part by the proceeds of the sale of a home or other real property, the estate should be flagged for close attention. There are any number of ways that mishandling the management and/or sale of real property can cause distributions from an estate to be reduced. Watch for sales to related parties for less than fair market value or neglect of the maintenance of the property sufficient to lower its value when finally sold.
Aviva Shiff Boedecker: Another challenge is that many charities don’t pay attention when they receive estate related documents and don’t respond in a timely manner— which can sometimes mean they don’t receive anything at all. When a staff member at one of my clients learned the basics about what to do and what to look for, she started combing through old estate files and contacting the representatives. In a short time she collected thousands of dollars from dormant estate files!
Another growing problem is that charities are often unaware that they are the designated beneficiary of a retirement account or insurance policy. Even if the charity does know about the account, they may have a very difficult time receiving the distribution.
G&T: What should a charitable beneficiary of an estate expect from an executor, personal representative or other administrator of an estate?
Boedecker: Courtesy, honesty, prompt and clear notifications. Responsiveness. Even if the personal representative has no idea what they are doing, he or she should still be honest and responsive. If the representative is not responsive, this can be a red flag that something is amiss.
Knitt: You should request a full copy of the will and at least the relevant sections of a trust—although you should also request a full copy of the trust as well. State laws will ultimately determine who is entitled to what portion of a trust. If it’s a residuary gift, you should expect a full and timely copy of the inventory and accounting unless an accounting has been waived by the decedent in the will.
Jensen: I would just add that the executor owes the beneficiaries his or her best effort as a fair and unbiased fiduciary who will seek to follow the wishes of the deceased as expressed in the wording of the will or trust. The executor should not favor one beneficiary over another.
One thing organizations should always remember is that when a donor remembers a charitable interest in his or her estate plans, he or she is essentially elevating it to the status of a “family member.” The mission of your organization is that important to the donor. Remembering this and reminding estate administrators of this fact may be helpful as you deal with possible delays and pitfalls with estate administrators and family members.
G&T: What should charities do if they are asked to sign a “release and waiver” form prior to receiving funds left to them through a will?
Boedecker: This is one of the most common questions I get. The bottom line is don’t automatically sign these without careful consideration! They are not all the same. Read each document thoroughly, make sure you understand the terms and ask for legal guidance where appropriate.
Knitt: I agree. It is among the responsibilities of a charitable organization’s staff members to protect the interests of the organization. One of those interests is making sure the organization receives what it is supposed to receive. Any time a document, especially one involving the residuum of an estate, is provided (whether a signature is requested or not), it should be read carefully. If there is a question about giving something up, such as a right to a final accounting, it’s preferable to have the document reviewed by legal counsel.
Jensen: Never agree to anything that is unreasonable (such as exempting the executor from liability for theft, malfeasance or other misdeeds). If you sign a document through which you waive any rights, it can be very difficult if not impossible to go back later. For example, if a house is worth $250,000 and the executor sells it for $150,000 and you sign the release and waiver, you have just given up $100,000 unless you can prove some malfeasance on the part of the executor.
G&T: What can a charitable organization do if it learns that a donor who has previously notified the organization of a planned bequest has passed away but there has been no notice of the bequest given by someone administering the estate?
Knitt: This can be a delicate situation to handle. It is entirely possible that the organization had been included in an earlier draft but was no longer included in the donor’s final will, or was removed or replaced in a beneficiary form for a retirement plan, brokerage account or other type of transfer that may have been anticipated. This is why we stress to our clients the importance of continued stewardship of donors who have indicated the organization will be remembered in their will or other estate plans.
Sometimes an executor or administering institution has made an error, or worse, has committed fraud in some manner. Short of being fortunate to receive a call from a whistle-blower (which I’ve experienced more than once), this could be a situation in which staff members could make inquiries among family members, other charities or public records. Depending on the anticipated size of the estate, it may be worthwhile to seek outside legal counsel. It may be helpful in some situations to contact the state attorney general. Attorneys general in many states have special units devoted to protecting charitable interests.
Boedecker: Contact the administrator of the estate or a family member. Express condolences and note that the person was a member of the legacy society and the donor had mentioned that they had planned a bequest. Ask if the person knows of any gift. It could have been contingent on something that has not occurred, or the person may have depleted their resources or changed his or her mind. If the gift was documented and the donor agreed that it would be enforceable as an obligation of the estate, then further steps should be taken with advice of legal counsel.
Jensen: I’m often asked how long you should wait before taking action. If you have not heard anything within 60-90 days, call the registry of probate (the name varies by state) in the county where the donor resided, identify the approximate period of death and order a copy of the will. Be aware that there will be a per-page fee. Rest assured that no one (including family members) will know of your call and the clerks are used to this. Also keep in mind that the fact that no will has been filed or it doesn’t name your organization does not mean that there is not also a trust or other document that names your organization but doesn’t have to be filed with probate court.
A good resource for more information about estate settlement is a six-part Give & Take series by Aviva Shiff Boedecker from 2012 entitled “What to Do When a Donor Dies.” You can access these articles here. If you have questions about estate settlement, ask your SHARPE newkirk consultant or contact us at info@SHARPEnet.com. ■