Four things a charity should do when advised of an estate bequest

Posted on September 29, 2023

Bequests made through Wills are a valuable income source for Charities and well-structured Bequest Programmes form an integral part of an organisation’s sustainable revenue stream.

Bequests are rarely afterthoughts - they are made with intent. If a person has left a bequest to your organisation in their Will, it generally means they have connected with your organisation’s objectives and purposes.

Clearly defined bequest management processes allow an organisation to capitalise on those gifts. Professional, consistent, and respectful dealings with family members, lawyers and other persons involved during the administration of an estate (even if their roles are not aligned with the organisation’s interests), all contribute to your organisation’s reputation and, when done well, may lead to new donors in the future.

Even in a non-contested estate (where no one is seeking to alter the distribution under a Will; or challenging the validity of the Will), an organisation should be prepared to protect its interests and rights regarding bequests. We’ve listed four considerations and some things you should know about the legal processes that can assist your organisation to maximise those bequests.

Four things your organisation should do when you are advised of an estate bequest

1. Ask for a copy of the Will

If advised by a lawyer or Executor that your organisation is entitled to a gift from an estate, the organisation should satisfy itself that the gift being offered is the gift provided for in the Will. The request for a copy of the Will is made to the Executor or the lawyer acting for the Executor.

If Probate has already been granted, obtaining a copy of the Will is straightforward. If the Executor objects to providing a copy, it can instead be obtained from the Probate Registry, for a fee.

However, if Probate has not been granted, then in South Australia, the Executor is not obliged to provide you with a copy, even though you are a beneficiary.

The South Australian parliament is considering the Succession Bill 2022. If that is passed, it will create an obligation upon the person in possession or control of a Will to provide it to a beneficiary, if requested.

NSW, Qld and Victoria already have legislation that expressly sets out that a beneficiary is entitled to be given a copy of the Will.

2. Determine if your organisation wants to accept the gift

It might seem odd to consider rejecting a gift, but there may be circumstances where the gift is subject to onerous obligations, or conditions which do not align with your organisation’s purposes.

You should obtain legal advice in that situation, as there may be ways to address and overcome such issues.

3. Ask when it is anticipated that Probate will be granted

Understanding the time frame for when a gift might be received, assists your organisation with cash flow budgets and alerts you to any unusual delays.

If the estate is extensive, it may take some time to prepare an Application for Probate. The assets and liabilities of the estate must be ascertained and valued as part of that process. Complicated asset structures involving companies and Trusts and assets held overseas can make it more difficult to determine the value of the estate.

Once Probate has been granted, you will likely still have to wait before the gift is paid. Most States have limited time frames in which people can make claims against an estate. A prudent Executor will therefore not distribute the estate until the time frame has passed. In South Australia, the time frame is 6 months from the date a Grant of Probate issues. Further, assets might need to be sold before any distribution can be made from the estate.

4. Determine if your organisation should get involved in the administration of the estate

If your organisation is receiving a lump sum or a specific item, there is little for you to do. Your organisation has no interest in how the rest of the estate is dealt with. You need only facilitate regular communication with the Executor or their lawyers to ensure you are kept appraised of the status of the estate administration.

If your organisation is receiving a gift of residue of the estate the considerations for your organisation may be more complex.

The residue of the estate is what remains after estate costs, debts, gifts of lump sums and specific items have been dealt with. The estate costs include the legal and other costs of administering the estate and tax. There many also be Executor’s commission to be paid.

If the Will provides for your organisation to receive residue of the estate, the costs incurred in the administration of the estate affect what your organisation receives. The higher the costs of administering the estate, the less is available for distribution amongst the residuary beneficiaries. Accordingly, your organisation may want to have greater engagement with the administration of the estate.

The organisation should request an inventory of the estate assets. There is no obligation for this to be provided, however, once the inventory is known, the organisation can then consider whether receiving their share of the residue is more beneficial as a transfer of an existing asset (for example shares or real property) rather than a portion of the sale proceeds once the assets have been realised. The sale of assets may incur tax liabilities, which if borne by the estate will reduce the amount received by residuary beneficiaries.

These can be complicated matters and it is important your organisation obtains legal and financial advice from practitioners experienced in estate administration.

If your organisation requires assistance with bequests, we encourage you to contact our Not-for-Profit team.

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