Planning Matters | Sharpe Group
Posted May 1st, 2003

Planning Matters

Gift planners often use the terms “bequest,” “legacy,” “expectancy,” and “deferred gift” interchangeably in efforts to describe a broad range of planned gift activity. Popular usage among fundraisers and others has broadened the meaning of these terms considerably beyond their original legal definitions.

When is a “bequest” a “bequest”?

Technically, a bequest or legacy refers to a testamentary gift of cash or personal property. A devise is a testamentary gift of real property.

Bequests can be further broken down into several categories: general, specific, and demonstrative. A general legacy is paid from the general assets of the estate, while a specific legacy describes a gift of specified property. Another type of bequest, a demonstrative legacy, provides for a gift of a certain amount of money or other property payable from a particular fund or asset.

Such gifts may be restricted or nonrestricted, though most charitable gifts via estates are of a nonrestricted nature. If a donor wishes to restrict a gift for a particular use, he or she should first ensure that the restrictions are acceptable to the charity, or perhaps provide for an alternative disposition of the gift if the charity is unable or unwilling to accept the gift as specified.

Understanding these technical nuances can be helpful in dealing with a donor’s legal advisors, but in general terms most persons perceive a “charitable bequest” or “legacy gift” as a gift designed to benefit a charity after the donor’s death. These gifts would also include life insurance or retirement plan benefits and “transfer on death” or “pay on death” provisions for brokerage or bank accounts, where the arrangement may be changed, altered, or amended as the donor wishes. In these cases, there is no completed gift until the donor dies. Such gifts are sometimes referred to by charities as “expectancies” because the charity expects to receive a gift in the future.

Expecting the best

Charitable remainder annuity trusts, unitrusts, gift annuities, pooled income fund gifts, life estate gifts, and other so-called “split interest” gifts have traditionally been referred to as “deferred gifts.” In these cases, a gift is completed in the sense that a donor has irrevocably transferred assets to the ownership of another entity, but the enjoyment by the ultimate charitable recipient is “deferred” for a period of time. In many cases, from the perspective of a charity, these gifts are increasingly no more certain than bequests by will or living trusts and, while it is true they are irrevocable deferred gifts, they remain in the “expectancy” category. Most charitable remainder trusts created by donors on their own with the help of their advisors include provisions that allow the donor to remove or change the charitable beneficiary at any time. The eventual benefits to the charity of other life income gifts are dependent upon investment returns and expenses during the intervening time, so it may be appropriate to consider these gifts as “expectancies” when projecting long-term funding.

Beyond vocabulary

Perhaps the ultimate lesson is that there are many ways donors can make gifts through their estates that are ultimately enjoyed at death or the expiration of a certain time period. The field of activity broadly known as “planned giving” or “gift planning” encompasses all of these means of giving as well as affording assistance to donors in structuring larger current gifts.

Gift and estate tax law changes, which were begun over 20 years ago and continue today, seem to have had little impact on gifts that are completed at death. Ongoing reductions in estate taxes may mean, however, that more donors take advantage of current tax benefits available through irrevocable deferred gifts.

If your funding programs already include efforts to encourage gifts via wills and living trusts, don’t stop there. Make sure your program includes activities designed to educate donors on other ways to give, and identify those persons who may wisely choose to give in ways that offer additional benefits during their lifetimes.

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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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