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Click the picture (or here for a PDF of the article Duke University Makes Claim on Estate of Aubrey McClendon – WSJ) and check out an article about how Duke University filed a claim against the estate of the late Aubrey McClendon for close to $10 million in unfulfilled pledges.
We have no doubt that the pledges were legally binding.
What we should be doubting is whether this was the right move by Duke or not. $10 million is a decent amount of money, even for Duke and its $6+ billion dollar endowment.
But here are a few questions I would have hoped Duke considered before embarking down this road:
I am a huge fan of using legally binding pledge commitments when appropriate and even filing claims to collect on them – when appropriate.
But here, I wonder if this was the right move. I know they had to file a claim before the deadline – and only afterwards will they know the answer as to whether there is enough to go around. Still, the first negative bullet point already came to fruition today.
With the number of so-called “real” planned gifts (CRTs, CGAs, CLTs, and even BLTs way down:{) since 2008 for most planned giving programs, the issue of “Irrevocable Bequests” comes up often.
Is there such a thing as an Irrevocable Bequest? No and yes.
Why no? There is virtually no way to fix someone’s will. It is a document by definition that is superseded by your next/latest will.
Why yes? Well, what if your donor signs a legally binding pledge agreement to pay a certain amount in exchange for something like recognition? Whether it is clear in the pledge agreement or not that charity is getting the funds from the donor’s estate, the charity IS legally owed the unpaid pledge amount from the pledge agreement (at least that is the case in most states).
Does this mean that upon the passing of the donor the charity need just submit their properly signed, legally binding pledge document to the executor of the estate and wait for the funds. It isn’t that simple.
The rest of this article was written to guide nonprofits in this tricky area of so-called “Irrevocable Bequests.”
The most important point to know is that an irrevocable bequest pledge agreements (i.e. a written promise to include a campus in a donor’s will/estate plans) is that they are legally no different than standard pledge agreements. New York courts in particular have historically enforced written pledge agreements for naming recognition gifts, regardless of whether the pledge intention is a lifetime pledge or a pledge to include a nonprofit in a will or other estate planning instrument.
In fact, it is relatively common within capital campaigns to offer donors the option of fulfilling pledges partially or completely through one’s estate plans – depending on the campaign’s goals and guidelines.
While the use of irrevocable bequest pledges can be a tremendous lift for a campaign, as the nonprofit world has seen for several years, there are several steps that a nonprofit should follow to ensure an irrevocable bequest pledge’s viability.
These steps are important because there may come a time in the future, after the donor has passed away, when the development staff will be called upon to provide substantiation of the pledged gift. If not included in the will or estate plans of the donor, the nonprofit may be required to show proof of the pledge and any facts surrounding the commitment. All of the aforementioned steps are offered to ensure that either the donor includes and keeps the nonprofit in his/her estate plans or there is sufficient documentation favoring the commitment to increase the likelihood that the gift will come to fruition even without being actually named in the estate plans.
Irrevocable bequest commitments, in particular, involve several potential legal issues that could affect whether the ultimate gift is received or not. Additionally, the law in the donor’s state of residence controls the enforceability of pledge; not every state is as favorable as New York is in regards to pledges. It is strongly recommended to review all potential bequest pledge gifts and agreements with legal counsel.
I saw this question (the title of this post) pop up on the WordPress feature that shows me what search terms or phrases people are using to reach this site and thought it was worth while sharing a general answer since I have dealt with this issue so many times.
Typical lawyer: it depends. Here are all the “depends” on this one:
Almost every Will starts off by asking the executor to pay off all debts, pledges, etc… If you represent a charity, don’t cheer just because you have some sort of pledge form signed by the deceased donor. IF your signed pledge form doesn’t meet the donor’s state law requirements for legal enforceability, an executor can reject it right off the bat.
And, even if you do have a clear pledge form under the applicable state jurisdiction, executors can push back anyway if the family doesn’t want to pay the pledge. Then, you would be forced to file a claim with the Surrogate (or other state equivalent) court WITHIN what ever time frame the state requires for filing claims against estates. I believe it can be several months from the date of date or longer depending on the state involved, but not that long and charities notoriously sit on their rights on this point (or, the charity may not even be informed of the donor’s passing in time since the estate is only required to notify heirs and named beneficiaries and publish a tiny notice in some obscure paper letting potential creditors know about the death).
Too many times have I seen estate paperwork a few years old and a charity wondering if they will ever get paid on that pledge from the deceased donor’s estate. Sorry Charlie.
But, do you file a claim if the executor doesn’t readily accept your pledge documentation as a valid claim against the estate when you are sure your form should have worked?
So tricky. So many times I have explored this option and NOT ONCE has the charity involved decided to file a claim (often with strong pledge evidence).
Why not file? Charities hate the thought of angry family or a story in the local press about how a charity is “suing” a poor widow. Whatever the reason, charities are generally not in the business of inflaming and/or exacerbating anger against them for a few dollars.
For new readers to this blog, don’t misunderstand my approach on this topic, I am very in favor of the use of legally enforceable pledges that even include intent that an estate pay off any unpaid amounts of the pledge should the donor pass away. But, you will find a lot pieces of advice (search the site) on how to ensure your charity gets paid and it usually involves making sure the donor actually includes your charity in the estate, avoiding the need for even thinking about going to court to enforce a pledge.
So, the answer to the question is: it depends!