Primer on Beneficiary Designation Gifts
What Are Beneficiary Designations?
Some financial assets—such as retirement accounts, life insurance and bank accounts—have beneficiary designation provisions or clauses. These designations instruct the financial institution to give assets directly to individuals or organizations upon the death of the owner. Sometimes special forms called “pay on death” or “transfer on death” provisions are legally binding and override wills, allowing certain financial account funds to pass immediately to beneficiaries outside probate.
The Benefits of Beneficiary Designation Gifts
The main benefit of beneficiary designation gifts is their simplicity. They are easy for the donor to change with only an update to a beneficiary form obtained from the policy administrator.
The assets pass outside of probate to be dispersed after the donor’s death. A death certificate is usually required to complete the process.
This is an attractive way for many donors to give because it is not an outright, immediate gift. Often, by naming a charity as the primary or contingent beneficiary or designating a percentage of an account or policy for charity, the donor is able to make a much larger gift than otherwise would have been possible.
While these are most likely to be deferred gifts, a donor may also decide to give a paid-up life insurance policy outright because they no longer need it for its original purpose (like the payment of estate taxes).
The Nonprofit’s Role
Beneficiary designations are often overlooked when it comes to recommending and structuring gifts. Charities should make sure this way of giving is noted in fundraising communications.
A note about life insurance policies, which account for many beneficiary designation gifts: There are many variations among basic life insurance plans. Because most life insurance plans are commercial products, they differ from one company to another based on each insurer’s unique branding guidelines.
Having a trusted insurance advisor on your board or your professional advisory committee would be very helpful if your organization markets gifts from life insurance policy beneficiary designations.
Special rules apply to some “pay on death” provisions in some states, so it is important to add disclaimer language when marketing those gifts.
Helpful Tools:
- Sharpe Data
Append age, wealth, gender, marital status and other important data to your files.
- On-Demand Printed Brochures:
- On-Demand Printed Booklets:
- On-Demand Printed Pocket Guides:
- Sharpe Planned Giving Websites
Provide a planned giving microsite to help your donors learn how to give through retirement plans.