News & Events

Not All Bequests Are Created Equal

The National Philanthropic Trust estimates that upwards of $27.4 trillion in charitable bequests will be made in the U.S. through 2052. In fact, interest in planned giving has grown in the wake of the Great Recession. Donors have found that committing future gifts from their estate allows them to support a charity — even if they lack the means for a current gift.

NFP Newsletter April 2016 on BequestsAt its most basic, a bequest is a gift of  personal property made through a donor’s will. Such property could be anything from money and real estate, to works of art or even patents and other intellectual property. Yet not all bequests are created equal, and it is critical for fundraising officers to clearly understand the differences.

  • Pecuniary Bequest – A fixed or stated sum of money designated in a donor’s will.
  • Specific Bequest – A designated or specific item in the will. Typically, the item is intended to be sold by the organization and the proceeds to benefit its charitable work.
  • Residuary Bequest – All, or a portion of a donor’s assets, that remains after bequests have been made and any debts and taxes paid.
  • Contingent Bequest – A gift made on the condition of a certain event occurring. For example, a specific bequest to fund a special shelter if an animal welfare organization attains the property to house it.

Note that these different types of bequests can be mixed and matched in the donor’s will. Ultimately, most nonprofits have substantial untapped potential for bequests through their major and annual donors. The key is to establish and nurture the strong relationships necessary to be written into a will.

Furthermore, the bequests can be organized as either revocable or irrevocable.  Understanding the distinction between the two can affect how an organization sets goals, plans and evaluates its programs, and reports such gifts in its accounting records.

Revocable bequests are designed to pass to an organization in the future, typically when the donor dies. A donor may change or “revoke” this bequest during their lifetime.  As long as the gift to the organization remains revocable, the donor is not eligible for a charitable income tax deduction and the organization does not record the gift in its accounting records. However, if the gift passes to the organization when the donor dies, his or her estate will receive a charitable estate tax deduction and such gift should be recorded in the organization’s accounting records.

Conversely, irrevocable bequests are completed transfers of assets to an organization that cannot be changed or “revoked” by the donor. Since the donor irrevocably gifts such assets to the organization, the donor will receive an immediate charitable income tax deduction, and the organization will record the value of such gift in their accounting records.

An experienced accounting professional can be invaluable in evaluating and managing donor bequests.

For more information on this topic, please contact our office at 401-331-0500 and ask to speak to one of our Not-for-Profit specialists.