BEQUEST FACT SHEET
Bequests are charitable gifts that are made through a Will or estate plan. In 2018, Americans gave nearly $40 billion in bequest gifts—9% of total giving. As the Baby Boomer generation passes approximately $30 trillion in wealth onto the next generation in the coming years, nonprofits must seek to secure more and larger bequests to fund their future.
What are the types of bequests?
1. General bequests: gifts from the general assets of an estate.
2. Demonstrative bequests: gifts from a specific fund or source (i.e., $5,000 from a bank savings account).
3. Specific bequests: gifts of specific, distinguishable property. These gifts, such as paintings, jewelry, or a car are often sold by the organization for proceeds.
4. Residuary bequests: gift of the remaining assets after making distributions of specific bequests and after all costs/debts are fulfilled.
5. Contingent bequests: gifts made on the condition of certain events (i.e., gift is made if no heirs are alive).
What are the benefits of bequests?
Bequests are attractive giving vehicles because they are flexible, easy to put into a Will or estate plan, and allow a donor to leave a lasting legacy with a cause without any cost to them while they are alive.
What are the tax implications of bequests?
Bequests are free from federal estate taxes and are often not subject to state inheritance or estate taxes. In 2018, estate and gift tax exemptions increased slightly to $5.6 million per individual and to $11.2 million for married couples. Therefore, single people can leave $5.6 million and married couples can leave $11.2 million to heirs without paying any federal estate or gift taxes. If estates are larger than these exceptions, bequests are useful tools for reducing estate taxes, as there is an unlimited deduction of charitable bequests against the value of an estate.
What are the tax implications of bequests?
Bequests are free from federal estate taxes and are often not subject to state inheritance or estate taxes. In 2018, estate and gift tax exemptions increased slightly to $5.6 million per individual and to $11.2 million for married couples. Therefore, single people can leave $5.6 million and married couples can leave $11.2 million to heirs without paying any federal estate or gift taxes. If estates are larger than these exceptions, bequests are useful tools for reducing estate taxes, as there is an unlimited deduction of charitable bequests against the value of an estate.
It is also important for many donors to inform the nonprofit organization and complete a Declaration of Intent form. Donors can often receive benefits and recognition in their lifetime if they share their intentions. Further, this information helps the organization properly plan for their future.
Revocable or Irrevocable?
Generally, bequests are revocable, meaning donors have the option to change their plans before passing. However, a bequest could be irrevocable if the donor signs a legally binding pledge document. This document is a contract and its enforceability is governed by general contract law. Most often, nonprofits choose to omit any legally binding language, as bequests are often made under the assumption of flexibility.
Who typically makes a bequest?
▪ Donors who want to make a charitable gift during their lifetime, but also want to retain control of their assets.
▪ Donors who would like to minimize their estate taxes.
▪ Long-term donors who want to leave a lasting legacy.
▪ Prospects who want to make a major gift but cannot afford to part with a signification portion of assets in their lifetime.
BEQUEST GRANTOR SPOTLIGHT
Mrs. Smith has been a longtime supporter of her undergraduate alma mater. She has made numerous gifts over the past 20 years totaling more than$100,000. The university has launched a campaign to increase the number of scholarships for low-income students and Mrs. Smith is eager to support this initiative through a significant gift. However, Mrs. Smith is worried about having enough assets for the remainder of her life and wants to leave enough money to her grandchildren to support their college tuition. Mrs. Smith decides to consult her estate attorney to set up a residuary bequest, in which the remaining assets in her estate, after distribution of all other commitments, will be directed toward the university’s scholarship program.
