Irrevocable Bequest

Irrevocable Bequests?

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  It is a document by definition that is superseded by your next/latest will.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.

  1. Get it in writing: Always make sure there is a clear, signed written gift agreement with the donor. Verbal pledges or those inferred from various letters or notes could be rejected by an executor, possibly with no legal recourse.
  2. File it: Keep very good records, especially a copy of the signed gift agreement, in a file that may someday be needed to provide the basis and background for the pledge.
  3. Be transparent: Your donor and his or her family need to be informed of the irrevocable nature of the commitment (i.e. that his or her estate may be called upon to pay off the pledge). Copies of letters and notes clearly explaining this should be left in the file.
  4. Get in the Will: Technically, a signed pledge agreement can be submitted to the estate executor as an unpaid obligation for payment. Practically, if you want to ensure that the campus will likely receive the funds from the pledge, strongly encourage the donor to include the gift in his or her will. Include a request for a copy of the relevant portion of the will or other testamentary option on the pledge form itself. Relying only on a signed pledge form for a bequest promise should be the last resort if all other efforts have failed.
  5. Recognition: Donor recognition is always important but for bequest pledge commitments, it is even more important. Save clippings, pictures, press releases, and anything else showing the recognition given to the donor for his or her commitment. And, copies must all end up in the donor file.
  6. Treat as a real gift: Many finance departments may be reluctant to include an irrevocable bequest pledge as an actual asset of the organization. They should be informed that legal and accounting standards actually require properly documented bequest pledges to be counted as assets/accounts receivable in the financial records of the charity.
  7. Stay in touch: Continued donor contact is very important for ensuring continued commitment to the pledged gift. It is an easy step to ensure that there are no later problems in receiving the gift.

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.