4 Tips to Ensure Your Gifts Successfully Reach Their Intended Recipients
Posted July 2022
Without thoughtful contingency planning for unforeseen circumstances, bequests or other end-of-life gifts you intended might not happen. Following are the four main reasons such gifts may not be successful and actions you can take to prevent that outcome.
Ademption: Roger's will provides that his home located at 123 Washington Street be distributed to our organization and that his residual estate, after paying various bequests, be divided equally between his two sisters. However, while still living, he sells this property but makes no changes in his will. The bequest of the real estate adeems, which means that it becomes moot because the property was not in Roger's estate at the time of his death.
To ensure a charitable gift, Roger could have provided that we receive a sum of money or a percentage of his residual estate if he does not own the Washington Street property at the time of his death. (The "residual estate" is what remains after paying administrative expenses and specific bequests.)
Abatement: Marjorie's will provides for bequests of $100,000 each to five nieces and nephews and for her residual estate to be distributed to our organization. At her death, her estate assets, after payment of expenses, total only $400,000. The bequests abate, meaning they are reduced. Her nieces and nephews each receive $80,000; and since there is no residual estate, we receive nothing.
If she wanted to ensure a charitable gift, she could have provided in her will that we, along with the five nieces and nephews, receive a percentage of the residual estate. In this case, each would have received $66,667 ($400,000 ÷ 6).
Lapse: Steve leaves a bequest of $100,000 to his brother Stan, but Stan dies before Steve—and Steve later dies without having changed his will. The gift to Stan lapses, and the money that would have gone to Stan becomes part of Steve's residual estate unless there is an applicable anti-lapse state law. Pursuant to such a law, the $100,000 designated for Stan might be paid to Stan's children per the presumption that Steve would have wanted them to receive his share. However, in some instances, there may be no applicable anti-lapse law.
To remove any uncertainty about the payment of a bequest, you should provide in your will for a back-up beneficiary in case the named beneficiary is not living. If a bequest is designated to a strong, well-established charitable organization such as ours, a back-up charity is probably not necessary. However, if there are any concerns about the long-term future of the organization or the continuation of any programs, then provision for a contingent beneficiary could be advisable.
Omission: Darlene ordered a will kit and prepared her own will. Unfortunately, she failed to comply with the requirements for a valid will in her state—and in the absence of one, her estate was distributed according to the intestacy laws of her state of domicile. Consequently, the bequests she had included to our organization and certain friends were not paid.
Darlene intended to leave a gift to further our mission with whatever remained in her IRA (currently about $750,000) and give the rest of her estate (currently about $4 million) to her two sons. She had been advised that this was the most tax-efficient way to provide for both family beneficiaries and for charitable causes. As planned, she updated her will leaving her entire residual estate to her sons, but she never got around to requesting a change-of-beneficiary form for the IRAs. So when she died, the IRA funds were distributed to her sons—whom she had named as beneficiaries years ago.
These are but two examples of how omissions can have unintended consequences.
To ensure that your gifts, whether to family or charitable organizations, reach the intended recipients, engage professional legal counsel to identify the issues, guide you, and properly draft legal documents. Also, feel free to reach out to us. We can work with you and your attorney to ensure that your charitable objectives will be realized.
And remember that the primary reason intended gifts are not successful is not ademption, abatement, lapse, or omission, but simply procrastination about taking necessary actions.