The NOT So Simple Charitable Bequest
By Kevin J . Dvorak , CFP ®
Did you know 85 % of planned gifts for charity are simple bequests ? This means many of the wills you write will include some sort of bequest to your client ’ s favorite charity . Notice I said “ simple ” bequest . This article will show you that while bequests can be “ simple ,” they can also go wrong for many , sometimes surprising , reasons .
So , your client comes to you and would like you to draft their will . Along with the usual bequests to family and friends , they would like to include a provision for a gift to their favorite charity ( ies ). Terrific ! You proceed to write the provision according to your client ’ s wishes . Terrific ! Except , you have this nagging feeling the language may be just a bit restrictive and may be difficult for the beneficiary to actually accept the gift as the client would like it drafted .
Hhhmmm … how do you satisfy your client ’ s desires for the disposition of their assets and serve the needs of the nonprofit beneficiary and , ultimately , the betterment of the community ? If you draft a provision that is not useful in supporting the mission of the nonprofit beneficiary , your donor ’ s wishes won ’ t be satisfied , the nonprofit they wish to support won ’ t be satisfied , and the needs of the greater community served by the nonprofit won ’ t be met either .
What causes these testamentary gifts to fail ? It could be any number of things , such as :
• Misnaming the beneficiary .
• Not including the tax ID # of the correct charity .
• Not making sure the gift is actually to a legitimate charity in good standing with the IRS ( see tax ID # above ).
• If the gift is for endowment , misstating or incorrectly defining “ principal ,” “ interest ,” “ income ,” or “ return .”
• Making a gift that is too small for the nonprofit to accomplish your client ’ s stated purpose for the gift .
• Making a gift that is so large as to “ tip ” the charity from public charity status to private foundation status .
• Or , making a gift so large it cannot be properly and efficiently used for the purpose intended by your client .
• Naming a charitable beneficiary that , by the time the bequest matures , is doing something entirely different from its original mission or has closed its doors .
• Pouring an estate over into a grantor trust instead of a charitable remainder trust when the remainder beneficiary is a charitable organization , which can waste substantial tax benefits provided by the CRT structure .
This is but a partial list of actual scenarios that can and do happen when a charitable bequest is not researched and scrutinized to a degree sufficient to avoid these problems .
Let us start with the first issue . The North Dakota Community Foundation is a pretty simple name . Just four words that , one would think , logically follow each other . Well , you might be surprised at the monikers that some , many who have worked with us for years , call us by : The North Dakota Communities Development
Foundation , North Dakota Development Foundation , the State , the North Dakota Fund , and the list goes on . You can see how this can get tricky if your client intends to help one organization but is unsure of the correct name . Do your research and , if you have any doubt , dig deeper . The tax ID # and the IRS charity check website Tax Exempt Organization Search | Internal Revenue Service ( irs . gov ) are two very useful tools in ensuring the provision in the will actually help the intended organization .
Regarding gifts for endowment where the donor intent is to have a “ true ” endowment that supports the charitable cause in perpetuity , keep it simple and just state the gift is intended to be a permanent endowment . Yes , that sounds redundant , but some charities bend the true definition of endowment to mean , “ as long as we feel like it , or until we need to or choose to use it all .”
Right sizing the gift to accomplish the client ’ s charitable goals can be delicate . Some clients are reasonable and understand what it takes to run , fund , and manage an ongoing charitable endeavor , some do not . Just because your client believes capturing and neutering all the feral tabby cats hiding out in the Little Missouri River Basin is critical and they would like to leave a gift of $ 20,000 to accomplish this goal , does not mean any organization would take on such a task with those limited resources .
Kevin J . Dvorak has been president & CEO of the North Dakota Community Foundation since 1995 and is a Certified Financial Planner ( CFP ). He is president of the Western Dakota Estate Planning Council , a member of the Diocese of Bismarck Finance Council , and a member of the ND Association of Nonprofit Organizations Public Policy Committee .
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