In this article, I would like to share some practical pointers with you based on what I have learned in settling estates with charitable beneficiaries. Over years of monitoring more than 7,000 estates that include one or more charitable bequests, I think I have seen just about everything!
Imagine opening your mail and finding a letter from an attorney telling you that a “Mary Jones” has left a sizeable gift in her estate to your organization. Your first thought is that you are sorry that Mrs. Jones passed away, and you fondly recall your last conversation with her. Our role can be challenging in that way. We hate to lose our friends and those of our organization, but we also feel satisfaction when we know that we have the opportunity to fulfill a special role in helping assure their last wishes to benefit a worthy cause are carried out as they intended.
What is your next step? Do you call Mrs. Jones’ attorney yourself? Or, do you pass this matter to someone else who handles the collection of estates and wait for them to let you know what happens? It all depends on who in your organization deals with the estate administration.
Who is in charge?
If you are responsible for estate gifts, are you comfortable that you have a system that works well? If your controller manages the process, do you worry that this person never knew Mrs. Jones and you don’t get any “closure” on your relationship with Mrs. Jones and her family once the gift is made? In either case, is there someone in your organization who will handle Mrs. Jones’ gift so that her wishes are truly carried out?
Does your organization have someone who is skilled in the laws of probate, has great interpersonal skills, and is efficient and professional when dealing with executors, attorneys, and donors’ survivors? My experience with the estate administration process is that it is very complex. Therefore, an organization needs someone with all the above skill sets handling the administration of estates. In practice, though, what I have seen in many cases is a lot of confusion on who should handle these issues, their qualifications for doing so, and how they should be handled. This article will alert you to some of the basic things to know to help assure that estates are managed as effectively as possible.
Back to Mrs. Jones
Let’s say that Mrs. Jones left your organization a percentage of the residue of her estate. What should you do in that case? Many charities do nothing more than put the notification letter in a file and wait for the distribution, assuming that everyone involved with the estate administration will do what is appropriate. But think about this: In the case of a gift of a percentage of the residue of an estate, your organization will ultimately receive some percentage of whatever is left in Mrs. Jones’ estate after creditor claims, taxes, attorney and executor fees, and all other specific gifts (like her house to her niece and her favorite chair to her brother) are distributed. What if this means that your institution should receive $250,000? And, what if the niece and brother are not too happy about your bequest? What if they decide Mrs. Jones couldn’t have been in her right mind if she gave all this to your charity instead of to them? What if the niece is the executor of the estate? Is this scenario beginning to make you uncomfortable?
To make matters worse, what if $100,000 of your $250,000 gift is real estate that may be contaminated by a dry-cleaning business Mrs. Jones and her husband owned years ago? It could cost $500,000 to clean up this “superfund” site! Now Mrs. Jones’ gift just became your charity’s worst nightmare! And it could take a year or more from the initial receipt of the notification letter before you gradually discover that fact. At that point, you may be forced to hire counsel and proceed from a defensive posture.
I point out all these possibilities not to be alarmist, but because they happen every day. This is why you need someone who is skilled in estate administration and relationships to oversee the estate distribution process.
I have always believed it is the charity’s fiduciary responsibility to make sure that Mrs. Jones’ wishes are carried out. She had faith in your organization and wanted her gift to benefit those you serve. Therefore, it is very important to be able to deal with all these issues efficiently and professionally, and to do so while maintaining the best relationships possible with all those involved. This is what will best serve your interests in the long run.
7 tips for monitoring estates
Let’s go through a basic checklist of seven items you need to consider when you open an estate file.
1. Verify the name and address of the donor. You may say, “That’s obvious, why is that on the list?” What if you did not know Mrs. Jones and the notification of the gift is from a Mary Jones who lived in a Connecticut nursing home near her daughter? In checking your records, you find no evidence Mrs. Jones had ever been a donor. But keep in mind your organization may have known her as Mrs. Jerry Jones living in New York. There may actually be donor visit reports in that file that would otherwise never be discovered. Where no donor records are available, you should be sure to contact the attorney’s office to determine her last known address before moving to the nursing home so you can tie the estate notification back to otherwise undiscoverable donor records that may give you more guidance in how to proceed.
2. Determine your charity’s exact interest in the estate. Is your organization named to receive a specific bequest, a residual interest, a percentage of the estate, or some combination of these? If the bequest is a residual interest or a percentage of the estate, you will need to see an inventory and an accounting of the estate in order to ensure that Mrs. Jones’ wishes are carried out. You may also need to protect your charity’s interest or limit your charity’s liability if a “gift” could cost you more to receive than it’s worth.
3. Request a copy of the will. If you’ve already been told what your interest is, then why do you also need a copy of the will? Because you need to be sure, as you monitor the estate, that any ambiguous provisions are interpreted in ways that assure your charity’s interests are being fairly represented.
Also, with a copy of the will, you can get information you need to help you do a better job of encouraging bequests from others. You will want to note when the will was drafted, when the donor died, and various other aspects of the gift and the donor’s gift history. If you have this information for enough gifts over time, there are formulas that can help you determine how to project future income from your estate program. In planned giving, it can be very difficult to project future estate income for various reasons. For example, how can you predict when people will die? But, with enough data, you can accurately project bequest revenue to be received over a number of years. This makes your job as a fundraiser more professional since you can rely on statistics and data to do budget projections from year to year instead of just “guessing” based on what your revenue was last year.
4. Request a copy of the inventory. The inventory is the first time the assets of the estate are listed and the value of the estate is estimated. It is typically filed with the probate court by the attorney for the executor for the estate. This document will be helpful in estimating how much your interest will be so you can report this to your management or Board. Sometimes an inventory is not prepared in a timely fashion, so you will need to be in touch with the attorney or executor to determine whether and when this will be available. It may also be important to know why an inventory is not being prepared if one is not. This may be the first sign of potential irregularities to come.
5. Determine the date for creditor claims. You will probably want to determine the creditor claims deadline so that you can begin to have an idea when a distribution will be made to your organization. While all states are different, the time that creditors have to file any claims they have against the estate generally ranges from three to nine months. This information is available through the probate clerk’s office and can usually be accessed online as well.
Generally, medical and other final expenses will be fi led during this time, but more importantly, this is the time when anyone who has a claim against the estate has to fi le their claim. It is during this time that caregivers, relatives who performed services for the person such as transporting them on errands, and others file their claims. Many elderly people will have others who help them once they become less mobile, and many caregivers can have very legitimate claims. However, you may also see claims filed that are over-inflated, or simply not legitimate. I have seen people try to claim that their time was worth $200 per hour for driving a donor to the grocery. If you, as a residuary beneficiary, do not question the validity of these claims, no one else may have a vested interest in doing so.
6. Request a copy of any accountings filed with the court. It can take several years for the administration of a larger estate to be completed and closed with the court. On average, even a very simple probate can take more than a year. Usually the court wants the executor and attorney for the estate to file an accounting at the end of each year. You will need a copy of these accountings so that you can bring up anything that concerns you in a timely fashion. This is also the time when fees for the attorney and executor are charged. While most attorneys and executors submit reasonable fees, I have noticed a substantial number of cases where the attorney fees were excessive given the amount of work that was done. Some states have statutory fees, but others do not. Again, you may need to access this information in the state in which the estate is filed to determine what is reasonable.
7. Determine what other nonprofits are in the will and for what amounts. You may think this is not necessary, but I have found it to be helpful from a fund-raising perspective. This can give you valuable insight into the thinking of your donors. Do you see gifts to the same charities often? If so, why? From reviewing this information, I have determined that some organizations that serve a particular need do not have effective planned giving programs, and the donors to those organizations sometimes give to other organizations that do a better job of communicating their interest in receiving bequests and other planned gifts. If you find this, too, then it may help you increase the effectiveness of your planned gift marketing.
Editor’s note: In the next issue of Give & Take, we will explore some issues relating to typical challenges you may encounter as you proceed in handling charitable estate settlement and how to deal with them effectively and in a timely manner.
If you have specific questions about estate management, please contact the author, Triena Stecks, by e-mail at email@example.com