Inheritance or Legacy Gifts: How Your Nonprofit Can Encourage Them

It's every nonprofit's dream: the phone rings and you discover that a (regrettably) deceased donor remembered your group with a generous gift in a will. It does happen. In fact, the COVID-19 pandemic gave a boost to legacy giving, as people confronted mortality in a newly urgent context.

The vast majority of legacy gifts to nonprofits are made not through complex annuities and other financial arrangements requiring the nonprofit's management, but the old-fashioned way, through wills and simple probate-avoidance devices (such as living trusts and beneficiary designations on IRAs, 401(k)s, and other financial and investment instruments).

Your nonprofit doesn't need to be at all involved with the arrangements for someone to leave you a gift in a will or similar device. However, you should know how to encourage such gifts, especially before you consider offering more complex legacy gift arrangements, such as charitable annuities.

Mechanics of Making Charitable Donations Through an Estate

Most people leave the bulk of their property through wills and/or living trusts. Both are simple to create. In order to name a charity among the beneficiaries, the donor simply states:

• the nonprofit's full legal name and location (for clarity, it helps to include the tax ID number, but this isn't required)
• the nature of the gift (for example, cash or property), and
• if the donor wishes, restrictions on what the organization can do with the gift.

It's even simpler for a donor to name a nonprofit organization as the beneficiary of property such as a bank account, life insurance policy, or retirement plan. The bank or other company usually provides a form for the donor to use.

To help donors with their paperwork (and to avoid any possible confusion about which charity they intended the gift to go to), prominently display your nonprofit organization's legal name, location, and tax ID number on your website, your newsletters, and relevant brochures or other communications.

Which Donors Might Make Charitable Gifts?

Although the perception is that your long-time, major donors are more likely than others to leave you a bequest (especially if they're older and planning their estates anyway) this isn't always the case. Younger or less affluent donors might not have much money to give your organization now, but will gain satisfaction by making plans to leave you property later. And, young or old, many people take comfort in thinking that their impact will be felt on this earth even after they're gone.

How to Attract Legacy Gifts

By reminding donors about the importance of estate planning, and by providing information about how gifts from their estate can benefit your organization, you help everyone achieve their goals. This can be as simple as adding an article to your newsletter or website or doing social media shout-outs to donors who have already named your organization in their will. Here are some other ideas:

Remind donors what will happen to their estate if they make advance specifications. You can start by letting potential donors know that if they fail to plan their estates, state law will direct that their property be distributed under a one-size-fits-all statutory formula called intestate succession. This prioritizes immediate family members, and might not fully reflect their wishes.

Demonstrate how your nonprofit will use the assets. To further encourage estate donors, show how your group will put their assets to good use. Most donors prefer that you apply gifts toward something lasting, such as an endowment or a capital project, rather than general operating costs.

Provide recognition. You should also offer recognition opportunities to donors who want it (though many are content to go without it). A plaque or inscription with the deceased's name is popular. Other forms of remembrance, from published thanks to dedicating a building, program, or scholarship to the donor, are also effective. You don't have to wait until the donor has passed on to provide such recognition. Many nonprofits create a society honoring people who've informed them that they've arranged for a legacy gift. They hold thank-you events for them and mention their names where appropriate.

Demonstrate your nonprofit's longevity. Your organization must demonstrate that it will still be around when the donor's Last Will and Testament is pulled out of the drawer. This will be easier for established groups than for small ones or those with a limited purpose (such as freeing a particular political prisoner).

Show donors how gifts can reduce estate taxes. For your wealthiest donors, you can explain how charitable bequests can reduce (or even eliminate) the amount of estate tax their beneficiaries will owe. (Learn more about estate taxes taxes and how to reduce them.)

Invite donors to talk about estate planning. It can help to foster personal contact with potential legacy donors by meeting with them individually or inviting them to an estate-planning seminar. It's best to have a lawyer or other professional lead the more technical part of the seminar.

Restrictions on How the Charitable Gift May Be Used

Many donors will specify particular purposes toward which the gift must be put (called a "restricted gift"). For example, the donor might state that the gift is to go toward your organization's endowment, that it can be used only for a particular program, or that even more conditions must be met, such as "to be used only for support of hatha-style yoga during the summer children's program."

You're legally bound to follow the restrictions stated in the donor's will to the extent possible and to keep the gift funds separate from your organization's other (unrestricted) funds. Although you might have flexibility in cases where carrying out the donor's wishes would truly be impossible, you'll nevertheless need to consult a lawyer about any significant changes in how you use the gift.

If you have a chance to talk to the legacy donor in advance, describe the potential difficulties of a narrow description of the gift's purposes. Explain that, while you'll do everything possible to respect the donor's wishes, hopefully many years will pass before the gift is actualized, and binding your organization to something that might no longer be important won't honor either your organization's needs or the donor's intentions.

One handy approach is for the donor to tie a gift to narrowly defined purposes, but ameliorate it with a sentence along the lines of, "If the gift cannot be used for these intended purposes, it may be put toward such purposes as the board of directors decides."

When to Offer Charitable Donors More Complex Legacy Giving Options

As your organization grows and its development efforts become more sophisticated, you might want to offer donors a further giving incentive. Estate planning tools with names like "charitable gift annuities," "charitable remainder unitrusts," or simply "life income gifts" allow people to give assets to a nonprofit organization for investment, but either continue to derive some income from those investments during their lifetime or give the organization the income while requiring it to return the principal to the donors or their heirs.

Most organizations that are large and established enough to attract such bequests make the sensible choice to either hire legacy giving specialists or attend intensive trainings when they're ready to move into this advanced area of fundraising.

For more information on developing your organization's capacity to receive legacy gifts, see Effective Fundraising for Nonprofits: Real-World Strategies That Work, by Ilona Bray (Nolo).