Bequests: Questions Donors Ask

Does this kind of gift make sense for me?

We spend a lifetime building, preserving and managing our estates. Thus, it is only right that we make thoughtful choices about how our estate will be distributed at death. Another critical issue for people with minor children is who will become the legal guardian of the children in the event of an untimely death of both parents. A will is essential to accomplishing these objectives. (Jointly owned assets and named beneficiaries of a life insurance policy or retirement plan will not be affected by the lack of a valid will, unless those named are no longer living.)

Why is a will so important?

A gift through your will or trust could be right for your donors if

  • They want the flexibility of a gift that doesn’t affect cash flow.
  • Long-term planning is more important than an immediate income tax deduction.
  • They believe in the mission of your nonprofit and want to see it continue for generations to come.
  • Creating a charitable legacy and making an enduring statement about their values is a top priority.
  • They would like to honor a loved one with a tribute gift.
  • A will is already in place or they are preparing to write one.
Will my gift be restricted?
  • Gifts to your nonprofit under a will may be given for unrestricted use, used to support a particular program, or added to an endowment.
  • In balancing the donor’s desire to support a special purpose with your ever-changing financial needs, advisors recommend that restrictions be described as broadly as possible, avoiding detailed limitations. The more limited the restrictions of such a bequest, the more important it is to add the following provision:

In the event that such use should prove to be impracticable or undesirable for any reason as the Trustees may determine, in their sole discretion, they shall then provide for alternative uses of the fund in a manner consistent with and reflecting the spirit of the original gift.

How do I make a bequest?

Below are examples of how to indicate a general or undesignated gift to your nonprofit.

  • Sample bequest language for the remainder of an estate:

I give, devise, and bequeath to [your nonprofit], Inc. TAX I.D. #12-345678, all [or state the fraction or percentage] of the rest, residue, and remainder of my estate, both real and personal. [Your nonprofit] may be contacted at 123 Nonprofit Street, Anytown, PA, 123456; 1-800-555-1212.

  • Sample bequest of a specific amount:

I give, devise, and bequeath $

to [your nonprofit], Inc. TAX I.D. #13-1788491. [Your nonprofit] may be contacted at 123 Nonprofit Street, Anytown, PA, 123456; 1-800-555-1212.”

Declaration of Support Letter: Donors should send a Declaration of Support Letter to their local Society Estate and Asset Services Director.

What happens if I die without a valid will?

Everyone has an estate plan, whether they think they do or not. In the unfortunate case that an individual passes without a valid will, the laws of the donor’s state of residence prescribe how and to whom the estate will be distributed — very possibly in a way that the donor did not intend. Regardless of means, everyone who has an opinion about how they’d like their estate to be distributed needs a will.

What is a revocable or living trust?
  • A revocable trust, also known as a living trust, is created by a living individual to manage assets for the benefit of the donor and/or other persons during their lifetime. The donor has the right to modify or revoke the trust during life.
  • At the time of death, the living trust becomes irrevocable and its assets are distributed to named beneficiaries, either outright or in further trust just as they would be under a will. However, assets held in the trust are “non-probate” assets, and trust distributions are not overseen by a probate court. Typically, the donor serves as the initial trustee of their living trust and appoints an additional trustee to oversee the distributions after they pass.
When should I consider updating my will or revocable trust?
  • Life circumstances change constantly. If donors have taken steps to finalize their estate plan, they can be certain that both the circumstances and the makeup of their estate will change from time to time. They should review their plan every five years to be sure it still meets their needs, as well as take into account current estate tax rules. Donors should review it more frequently as major life or tax law changes occur.
  • Examples of common events that signal it’s time for donors to review and update their plan:
    • Marriage
    • Divorce
    • A new baby
    • Stepchildren
    • The death of heirs
    • A move to a different state
    • Disposal, inheritance, or purchase of significant assets
    • When guardianship is no longer needed for adult children
    • When the testator wants to add or change existing beneficiaries
    • When the testator wants to add or change a charitable beneficiary
Do I need an attorney to write a will?
  • The simple answer is “yes.” Having an attorney guide donors in writing a will ensures compliance with all applicable state and federal requirements to give them peace of mind about the validity of their estate plan. Sometimes donors are reluctant to spend the money for a will and believe that they can take care of the legal language by following online guides. In order to persuade your donors to get the professional guidance that makes this a smooth process, please read on.
  • Every state prescribes what are known as “will formalities” to ensure the validity of a will. These formalities typically require that the will be in writing and that both the testator and witnesses sign. Additionally, the will must be notarized with self-proving affidavits. (This avoids requiring witnesses to come to court to prove the authenticity of the signatures on the will when the testator dies.)
  • A few states will allow individuals to create a will entirely in their own handwriting, known as “holographic” wills. If the will is properly witnessed and signed according to state law, the applicable probate court will accept the will.
  • However, there are many state and federal statutory limitations and details that should be addressed to avoid creating headaches for an executor down the road: statutory limits on deductible funeral expenses, fiduciary powers for the executor, and so on. There are also many contingencies that a layperson often overlooks. For example,
    • What happens if the spouse and children are all deceased at the time a testamentary trust terminates?
    • Who will serve as, or have the right to choose, a successor executor or guardian for minor children if the first choice is unavailable?
    • Which beneficiary’s share will bear the costs of estate administration, insurance, and/or shipping of items of tangible personal property?
  • A will is an important legal document and it is therefore wise to advise potential donors to employ the expertise of a qualified attorney. The expense of creating a well-written document will not only save the donor’s estate, but also their heirs’ inheritance later. Plus, the donor will have peace of mind knowing that their plan is solid and does what is intended.
What is the role of an executor/personal representative?
  • An executor or personal representative of an estate is the person the testator named in his/her will to manage and distribute his/her estate in accordance with the will. If the individual died without a valid will, the probate court will designate someone as an estate administrator to manage and distribute the estate according to the intestacy statutes. An executor’s or administrator’s work will be monitored by a probate court.
  • An executor does not need to be an expert in finances, probate law, or taxes, but can and should hire experts needed to assist in the proper administration of the estate. A good executor will be honest and organized, possess good common sense, and be willing to serve in a fiduciary capacity.
  • Many people name their spouse, an adult child, or another close relative to serve. If possible, the testator should name someone who lives nearby, is a resident of the state of the testator’s domicile, and who is familiar with his/her financial matters. This will make it easier for the person to do chores like collecting mail, selling assets, and finding important records and papers, and an executor who is domiciled in the state where the estate is being administered won’t have to file a surety with the court.
What is a probate court?

This is the court that determines the validity of a will and provides judicial oversight over the distribution of the estate. If there is no valid will, then the probate court will oversee the distribution of the estate according to the state’s intestacy laws.

What are non-probate assets?

Non-probate assets are any assets in an individual’s estate that will pass to beneficiaries by operation of law rather than according to the will. Examples include assets held in a living trust, jointly-held property such as real estate and bank accounts, and assets that will pass pursuant to a beneficiary designation (such as life insurance proceeds, brokerage accounts, and retirement plans). Whether an asset passes through probate or not has no impact on the estate tax ability of the asset. Non-probate assets often comprise most of the individual’s estate, so it’s important for potential donors to focus closely on all types of assets that will pass as part of a comprehensive estate plan.

What is a codicil?

This is a simple amendment to a will that avoids the cost and complication of rewriting an entire will. The codicil must be signed and witnessed and/or notarized in compliance with the state’s will formalities.

When should I use a bequest in a will or trust?

Most individuals who make bequests are deeply loyal to the mission of your nonprofit and want to make a long-term investment in your future. Because these gifts do not impact current assets or cash flow, they are frequently 10 times larger than the biggest lifetime gift. Most bequests are made to create an endowed fund or to add to your general endowment, thereby providing support for your nonprofit’s long-term future and continuing the donor’s philanthropy in perpetuity. Many donors set the amount of their gift to effectively endow their annual support.

What is a testamentary trust?

As opposed to a living trust which is created during someone’s life, a testamentary trust is created in a will and goes into effect only upon the death of a decedent. The purpose of such a trust is to provide assets and income for someone after your death.

Will I have to pay estate or inheritance taxes?

Estates worth more than $11.2 million are subject to estate taxes. If you have an estate worth more than $11.2 million, now is an important time to meet with your attorney, tax professional and other qualified professionals to update your plans.

Depending on which state you live in, your estate may also be subject to state estate taxes and/or inheritance taxes. It is also important to consider how you attempt to pass IRA or other similar retirement fund assets to your spouse or children, because those distributions will always be subject to income taxes. For many estates, careful planning is essential to minimize the impact of taxes on the estate. A qualified professional should be able to assist you with this. Finally, any assets you wish to pass on to qualified charities for their charitable purposes will avoid all taxation. In some cases, it’s a choice: give part of your estate to the government, or give it to charity. It is your choice if you do the proper planning.