Bequests and endowments 101
Get acquainted with bequests, endowments, and all the details around them both.
[fast-facts ref=”ff-6″]A bequest is a transfer of personal property—such as cash, securities or other assets—upon the owner’s death, as specified in their will.
More than any other type of giving, a bequest is characterised by long-term time frames. Funds pledged from notified bequests can take many years to come to fruition. However it is well worth investing in a well-managed bequest program as bequests are often the largest gift a person will ever make to your organisation or work.
Types of bequests
There are four main types of bequests a donor can leave in their will.
This is the remainder of the donor’s estate after first leaving gifts to their loved ones. A residual bequest will keep up with inflation.
Percentage or fractional
This is a gift expressed as a percentage or fraction of the donor’s estate. Again, these gifts aren’t influenced by inflation. Donors can leave a percentage of either the residue of their estate or a percentage of the entire estate.
Pecuniary or specific
This is a specified gift which can be money, property or stocks and shares.
This comprises the donor’s entire estate and is usually left by those without family or other preferred beneficiaries, or those wanting to achieve something very significant with their gift.
Note that a bequest may be given freely which means the recipient organisation can choose to deal with it as it sees fit within the aims of the organisation, or it may be given with conditions which must be honoured.
Creating a successful bequest
[fast-facts ref=”ff-7″]If your organisation is asking for bequests, it is useful to provide standard wording to potential donors so that your organisation can be assured that any bequests left by the donor will be legitimate in law.
Successful bequest programs are based on:
- offering ongoing opportunities for donors to engage with the organisation and understand the impact of a bequest;
- having role models and bequest ‘champions’ who assist in promoting the idea; and
- transparent and respectful processes including an organisation code of conduct.
The most likely people to make a gift under their will are current donors who have given for at least five years and who wish to continue the donation after their lifetime. The desire to be remembered or have one’s family or loved ones honoured by society, now or in the future, is a key motivating factor for a bequest.
Once a bequest prospect has pledged to provide a gift under their will they are usually referred to as a ‘bequestor’ or a ‘bequest pledger’.
Relationships with bequestors need to be carefully nurtured. People and their families who advise your organisation that they have made a gift in their will often appreciate recognition during their lifetime through initiatives such as bequest clubs or bequest circles as they are sometimes known.
Successful bequest programs have the additional following characteristics:
- The requesting organisation and all its members have a good understanding of the legal basics associated with bequests and wills.
- The organisation has easy to find wording regarding a bequest to them that a potential donor can access for inclusion in their will.
- Bequest materials are consistently included in communications about the organisation as appropriate (with the avoidance of age stereotypes).
- The requesting organisation has a bequest acceptance policy.
- Personal visits are made to confirm bequest pledgers.
[fast-facts ref=”ff-8″]Endowments can be defined as cash or another asset donated to an organisation whereby the conditions of the donation require that the asset be held or invested to generate income.
An endowment is most often a gift in the form of a fund which is established to provide an income for ‘beneficiaries’.
An organisation can be the sole or one of several beneficiaries. The fund is usually invested in ‘perpetuity’, which means there is no time limit for its end.
Only the income is distributed, not the original capital amount. So endowments are invested and the annual earnings distributed for the purpose specified by the donor. An endowment can be established by bequest in a will or it can be established during a donor’s lifetime.
An endowed gift tends to be highly valued by the recipient organisation as it keeps on giving a return, creating greater and greater impact over time. An endowment is also a meaningful and lasting way for a donor to create a memorial in their name or in the name of a loved one.
Some points to bear in mind:
- An organisation can accept gifts in the form of bequests or endowments without having DGR status. However, even if an organisation is endorsed as a DGR, a gift given by bequest is not tax deductible by the donor’s estate. A gift or donation made to an organisation with DGR status will only be tax deductible if the donation is made during the donor’s lifetime.
- Note that occasionally, a bequest or endowment may come with conditions that are more onerous for the recipient organisation than beneficial. In these situations the organisation does not have to accept it.
- There will be some donations to an organisation that will come in standard form, with little room for discussion or negotiation, for example a modest cash donation (1).
However, an organisation may also be the potential recipient of large gifts, bequests or rights under an endowment fund. In these situations, it may be worthwhile to have a conversation with the potential donor or the executor of the donor’s estate to discuss the potential donation.
To the extent that they can, they may try and negotiate the terms of the donation (if any) in a way that fulfils the donor’s wishes, but nevertheless allows the organisation to utilise the funds in areas that it is needed most.
- It is important to be aware that family provision rules may apply to vary the terms of a will to ensure that dependents and family of the deceased are sufficiently provided for under the will. Consequently, it may be that despite being named in a will, the gift may be reduced or indeed removed altogether when these rules apply.
- Justice Connect Not-for-Profit Law Information Webportal: Gifts, Wills, Bequests and Endowments
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