A charitable bequest is a direct gift made through one’s estate. It’s what people often mean when they talk about leaving money to heirs–or inheriting assets from a loved one. Bequests are one of the most common ways to make a legacy charitable donation, so it’s good to understand them, whether you’re making one in your own legacy plan or talking to donors on behalf of a nonprofit.
There are a few different kinds, and there are some things to do–and not do–when thinking through the specifics of this type of gift. We sat down with local estate attorney Kassandra Heinrich-Wydra–who’s about as fun and approachable as they come–to get the gist. Here’s what she had to say:
Apex: First off, you’re a lawyer and pastor? You don’t meet many people with those distinct skill sets!
Kassandra: It’s a long story, but I feel equally called to being an attorney as I am to being in ministry. And a lot of those skills overlap, honestly!
Apex: True. We sometimes joke that legacy consultants are kind of like marriage counselors. Values and belief systems bump up against financial decisions all the time–and it can get emotional at times. Our role is often to help people navigate family dynamics and their specific needs–current and future–to land on the right plan. I imagine it’s similar for you!
Kassandra: Yep! Something that’s also important to me is helping people plan for their life, not just their death. For me, that’s a lot like faith: it should be something that’s alive and changes with your circumstances. Planning for incapacity, or an injury, or aging is much more important than true estate planning–meaning just what happens after death. If you do all of that well, the legacy stuff will happen well.
Apex: So true. What’s the first thing you’d tell someone about legacy planning?
Kassandra: That it’s truly for everyone. Even if you don’t feel wealthy or rich–or you have a lot of debt–you still need a plan. I try to make estate conversations as practical and non-threatening as possible, and bequests are as entry-level as estate-planning methods can be.
Apex: Let’s start with the basics: what’s a bequest?
Kassandra: The bare-bones definition is that a bequest is simply a gift to someone–an individual or an organization–through an estate. It happens on a triggering event, most often someone’s death. For all practical purposes, a devise is the same as a bequest, and the terms are used interchangeably.
Apex: Anything people should know about bequests from the get-go?
Kassandra: First off, people don’t have to receive the gift. It can be rejected by the beneficiary, maybe for tax reasons or out of principle because of a rift in the relationship with the deceased. Bequests can also be made conditionally, or with strings attached. This is common with charitable bequests, which can be restricted to support specific initiatives–and have the potential to change over time. For both of these reasons, it’s a good idea to have a contingent plan in case dollars can’t go where you originally hoped they would.
Apex: What are the different types of bequests?
Kassandra: The main types of bequests are general bequests, specific bequests, residuary bequests, and contingent bequests. Here’s what you need to know about each one:
General Bequests
A general bequest gives a specific dollar amount, asset, or fixed percentage of a donor’s estate to a person or charity. These are fulfilled first in an estate settlement. Whether that’s a dollar amount, or a percentage, general bequests go first–and then any other bequests are fulfilled.
“I give to CHARITY the sum of $X or X shares of ABC stock or X% of my estate without restrictions.”
Specific Bequest
A restricted or conditional bequest is a way of giving a gift with proverbial “strings attached.” Maybe you want to leave a gift to your church, specifically for youth programs. I like to remind clients that these programs may no longer be in existence when the time comes, so it’s important to think of the what if!
“I give to CHARITY the sum of $X or X shares of ABC stock or X% of my estate to be used for XXXXX. Should such purpose become impossible or impractical to carry out, then for such other purpose as CHARITY’s trustees/directors shall determine that most closely meets my intended purpose.”
Residuary Bequest
This indicates where the remnants of an estate are to be directed, after specific gifts have been made. Someone might indicate specific gifts–maybe a flat dollar amount–to children and other heirs, with a residuary bequest given to a charity or multiple charities.
“All the rest, residue, and remainder of my estate, I give to…for…”
Contingent Bequest
This type of bequest indicates what should happen if a beneficiary doesn’t survive the donor–or an intended nonprofit recipient is no longer in operation or unable to use a gift as intended.
“In the event my sister Angela does not survive me, I give her share of my estate to XXX for XXX.”
Apex: What needs to be included when setting up a bequest?
Kassandra: Be specific in the bequest instructions included in a will or trust. Here are some things that are essential to an effective bequest:
DO include the name, location, and the federal Employer Identification Number (EIN) or tax ID of the organizations you’re bequeathing assets to. There could be 10 First Baptist Churches in your county, so be absolutely sure the intent is clear.
DON’T make a bequest to a class of causes (i.e. animals or homelessness). It’s really difficult for family or Probate Court to determine the donor’s intentions in a situation like this. Having a bequest that is too vague may also prevent the bequest from qualifying for favorable tax treatment under the IRS code. Be specific! Name the specific nonprofits you wish to support!
DO consider rolling assets into a donor-advised fund, charitable remainder unitrust, or other charitable tool to maintain flexibility if you’re unsure exactly where you want funds to go long-term. Your estate representatives–your executor, personal representative, and or trustee–will step in to allocate funds following the terms you outline in your estate documents.
DO think through what an actual dollar amount would be for each recipient. Straight dollar amount bequests seem clean–but what if you end up in expensive long-term care that diminishes the size of your estate? If your children’s specific bequests come off the top, are you certain there will be money left for your intended nonprofit beneficiaries? Consultants like Apex–or any good estate attorney–can help you think through the wording.
Apex: What am I forgetting to ask about?
Kassandra: There’s also a legal phrase that can be used, called “takers of last resort,” or sometimes called a “disaster clause.” That’s a worst-case-scenario clause that goes into effect when all named parties in an estate plan are unable to receive assets–like if the whole family is on vacation in Hawaii, and their tour helicopter crashes. This is incredibly rare, but you should think about what you’d want to happen to your estate in that kind of a situation. Many people choose to give their entire estate to charity in a situation like that.
Apex: What’s something you wish everyone did when it comes to estate planning?
Kassandra: I mean, estate plans are not one-size-fits-all. Have a detailed plan that fits who you are–with contingencies so you’re still covered if things change down the road. But even before that, get a financial advisor, get an accountant, and get an attorney. That trifecta is golden! They’re all going to be instrumental in living life well–and also leaving a meaningful legacy. If you can get those three roles to talk to each other, you’re going to be set up well to make tax-efficient and strategic financial decisions–both now and long-term–and know how to update your plan when things need to be adjusted. And then invite your children/heirs into the conversation about your intentions. There’s nothing worse than for there to be a wonderful plan in place–but for heirs to be blindsided or unsure how to handle the estate.
Apex: Great point. We actually put together a Guide for Communicating Your Plan last year. On that note, it’s also really important for readers to understand the role of communicating with the appropriate professionals when putting together a plan. This interview, and all of our Apex resources, are intended to be educational and should not be taken as legal or financial advice. As always, we encourage you–whether you’re creating or updating a legacy plan or guiding donors at a nonprofit–to consult a financial advisor and/or attorney about your specific situation before making any legacy decisions.
Kassandra: My door is always open! You can find me and my team at mzlaw.us. Feel free to reach out to me directly, too.