Considerations when offered a planned gift

You’ve just received word that one of your long-time donors has decided to leave a large gift, but it’s in the form of a planned gift. It might be as simple as naming your organization in the donor’s will. Or it might be a more complex mechanism like a trust or an annuity. One of the questions you need to keep in mind is what happens if your group ceases to exist or changes its name. While the default legal rule is that any reference to your organization will be treated as referring to the group’s successor, there are situations in which that is not true. And thinking about the possibility at the time of the gift can save a lot of trouble later.

Here are some considerations for charitable groups receiving gifts that include future interests:

Is there language that might preclude successors from receiving the gift?

Although there are some exceptions, successor organizations are treated the same as a named group. Many agreements repeat this default rule. That doesn’t usually hurt, but it might alter the mechanism in an unintended way. Be on the lookout for provisions that  prohibit transferring, assigning, or delegating rights in the gift documents. These are not always objectionable, and some donors might insist on them. But, as with all of these considerations, it’s important to identify whether the gift has these limitations. If a large gift is conditioned on the organization’s continued existence, make sure to note that in a way that will be known widely enough that future decision-makers are aware of any limits on their ability to dissolve, transfer the gift, or do business under a different name.

What are the conditions that must occur before the organization receives the gift?

Make sure you understand what must happen for your institution to receive the benefit of the gift. Will you receive some money now and the rest later? Must the donor die before receiving anything? Does your organization need to do anything before receiving the gift?

Is there a possibility that the gift could be revoked?

Some planned gifts might provide an opportunity for the donor to rescind the contribution before the organization even gets the benefit. Make sure you know whether this is a possibility before you do anything that depends on receiving the gift. (There can be tax consequences for the donor based on whether the gift is revocable.)

Is there anything you can do to make life easier if your organization dissolves or changes its name?

Perhaps the best way to think about these issues is to imagine yourself leading the organization years down the road when the donor dies. What would you wish you had to demonstrate your group is the intended recipient? There isn’t a universal answer. Maybe you wish you had printed those e-mails. Or taken notes after a key meeting with the donor’s lawyer. What if it isn’t you in that position? What would you want to make sure the person taking your place knows?

Similarly, it’s always helpful to spend some time thinking about the worst-case scenario. What if your group has dissolved and some other group or the donor’s successors threaten legal action? First, stay calm, this is only a thought experiment. Second, what would you expect someone challenging the arrangement to point to for support? Is there anything you can do to counter that argument? Is there anything you can do now to support your organization’s position later?

Have a question about legal issues affecting religious organizations? Let me know at questions@lawmeetsgospel.com or @LawMeetsGospel.