Estate Administration-Closing the Loop | Sharpe Group
Posted March 1st, 2000

Estate Administration-Closing the Loop

Bequests have traditionally been the source of a large percentage of planned gift income. As a result, in addition to actively encouraging charitable trusts, gift annuities, and other gifts that involve an irrevocable transfer of assets during life or at death, most organizations and institutions with active gift planning efforts devote a significant portion of their activities to the process of encouraging charitable bequests.

Much of the effort in terms of time and energy expended in the case of trusts, gift annuities, and other irrevocable gifts comes on the front end of the process in working closely with donors and advisors to help assure that such gifts are created in ways that are mutually beneficial to the donor(s) and charitable beneficiary(ies).

Bequests are different. While staff can be involved in the planning of bequests, gifts via wills and revocable living trusts are often created by donors with little or no knowledge of, or assistance from, the ultimate charitable recipients. Much of the work of the charitable entities involved is focused on communicating the needs of the organization, and asking that donors consider those needs as they make their long-term plans.

Four time periods

There are four distinct periods of time related to charitable bequests. First is the time period before the will is executed. This is a time when most activity is related to “asking” for the bequest, often in a relatively impersonal way through the use of mail and other mass communication techniques.

The second period of time is the time between providing for the bequest and the death of the benefactor. If the donor chooses to reveal his or her intentions during this period, an excellent opportunity is afforded for stewardship of a special relationship. If the donor chooses not to inform charities of bequests that have been planned, there is less for a charitable beneficiary to do during this period of time.

The third period of time related to a bequest is the time between the death of a donor and the receipt of the bequest. Finally, there is the period after the estate is closed and the bequest has been received. The focus of this article will be on the third and fourth time periods.

After notification

After an organization has been notified that it has been included in the will or other plans of a donor who has passed away, it is of vital importance that all attempts possible are made to determine the identity of surviving loved ones who should be thanked for the bequest. Ask the executor or attorney for the estate for the names of appropriate parties. Ask for advice from the executor or attorney as to who should be thanked. The executor may be a family member who can be very helpful in this regard. If there is lack of interest in your organization on the part of other family members, you may discover this fact during an initial contact with the executor.

Remember that five or more charities are named in the same will, on average, so your efforts in thanking surviving family members may be compared to other organizations’ efforts. Failure to thank surviving family members, where appropriate, can be a major mistake and one that can cost your programs in the future in many ways.

Second, steps should be taken to discover the nature of your bequest. Pay particular attention to whether it is a bequest of a specific amount of cash, a bequest of a particular property, or whether it is a bequest of all or a portion of the residue of an estate.

Pay especially close attention to bequests of the residue, or remainder, of estates. Consider the fact that excess fees, reductions in value of the estate due to sales at below market value, and erroneous tax calculations and apportionment may be born entirely by the residual beneficiaries.

Where a particular property is bequeathed, it can be very important that you gather appropriate information quickly, especially in the case of real estate, business interests, or other property that may require environmental audits, insurance, or other special attention.

Also attempt to determine if any restrictions have been placed on the use of the funds. Make certain that it is possible for your organization to carry out the donor’s wishes.

After receipt

Finally, after receipt of the amounts that are left to your organization, take steps to assure that the funds are used as directed, and that family members are regularly thanked where that is deemed appropriate. Ongoing stewardship of relationships with surviving family members can result in tremendous long-term benefits for organizations that take their efforts in this regard seriously.

A case in point

In 1997, Mary S. died and left an estate of $1,000,000. She left specific bequests of $225,000 to each of three nephews, and the remainder of her estate worth approximately $325,000 to three charitable interests. Each charity’s interest should have been worth approximately $108,000. A farm with an estimated date of death value of $300,000 was part of the estate and the rest was in the form of marketable securities.

The nephews received their distributions within six months in the form of cash following the liquidation of the securities portfolio. By the end of 1999, however, the charities had received nothing. One of the charities was monitoring the estate process and the other two were not. After two years, it was learned that the executor of the estate had entered into a contract for the sale of the farm property to a business associate for $250,000. The charity monitoring the process hired local counsel and after a few phone calls, the contract was cancelled and the property was placed with a commercial real estate broker and sold a few months later to another party for $375,000. As a result of a few simple efforts and minimal legal fees, each charity’s bequest was increased from a reduced amount of $91,000 to an increased amount of $133,000.

The two “passive” charities made no attempt to learn the identity of the surviving relatives, or to thank them. The active charity contacted the nephews and asked their opinion on which of three projects they thought their aunt might have wished to fund. They expressed interest in a project that would require $175,000. They each pledged $14,000 over a three-year period to provide the difference between $133,000 and the $175,000 needed to fund the project in memory of their aunt. As a result, the third charity received a total of $175,000 instead of the $91,000 bequest they would otherwise have received had they not been proactive in monitoring the estate settlement process and not sought the input of surviving family members. One or more of the nephews will no doubt continue their support in future years, as well.

As this example illustrates, minimal effort expended in the oversight and effective management of bequest development efforts following the death of a benefactor can make a tremendous difference in the amount of funds ultimately received.

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The publisher of Sharpe Insights 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 Sharpe Insights 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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