Are Your Heirs Stuck with Your Charity Pledges?

Generally speaking, if you promise to give something of value to a charity, that promise constitutes a legal debt. There are nuances and exceptions aplenty, but your death is not normally one of them.

Should you pass away leaving an unfulfilled, promised charitable donation to a nonprofit or charity, your heirs will have to deal with it in one fashion or another. Here is a quick rundown of what you need to know about leaving money to a charity and how to prevent problems in the future. 

To be legally enforceable, your charitable pledge must contain all five of the elements of a legal contract, listed here:

• Offer and acceptance – means you offered to make a future gift to a charity and the charity accepted that offer.
• Consideration – refers to something called “exchange of value.” With a charitable pledge this usually means that you promise to make a gift and the charity promises to use that gift for some specific named purpose.
• Legal intent – simply means that everything about the contract has to be legal. If you pledge a gift and the charity promises to use it to commit a crime, the pledge is not enforceable.
• Competent parties – confirms that both you and the charity are legally capable of entering into a contract.
• Legal form – means the contract must follow all appropriate laws and guidelines, including that it be in writing if that is a requirement in your state. (For more see: Contract Requirements.)

Charitable community foundations like the Dayton Foundation in Dayton, Ohio, rely on their reputations and positive relations with the public to do their work and to continue to attract donors. Dayton Foundation Chief Development Officer Joe Baldasare emphasizes the fine line organizations walk when it comes to public perception and the need for community goodwill.

Although the Dayton Foundation does not receive pledges for capital campaigns, it does receive donations promised by individuals, including from their estates. When a previously promised gift or donation is not honored by the decedent’s estate, Baldasare says it is prudent to ask, “Is it worth it for the charity to go after it in court and potentially be perceived by the community as attempting to keep money from the immediate family?” He added, “This is a slippery slope.” 

To avoid “slippery slope” issues, Baldasare says his organization goes through a two-step process to determine whether to pursue a promised gift and, if the answer if yes, how aggressive the pursuit should be.

• Step 1: “Do we have documentation and is it solid?” According to Baldasare, this step addresses whether there is a contract, if it is in writing and how ironclad the wording is.
• Step 2: “What is the potential cost, including time and resources?” The larger the gift, Baldasare says, the more likely the foundation would go to court.

In all cases, he says, “We also take into account any potential ill-will created by pursuing the gift.”

Since conflicts and court battles are not helpful to either party, Baldasare says that when meeting with potential donors, he suggests the gift be expressed as a percentage of the estate or of a particular asset instead of a specific amount.

“This accounts for losses or gains,” he says, “and makes the process easy to complete.” He notes that it also helps avoid conflicts when a specific dollar amount promised to a nonprofit could threaten to wipe out the entire inheritance for family members. 

Not surprisingly, according to Baldasare, court cases are rare. “Negotiation is common,” he says. “Typically, both parties want to avoid going to court.” 

Negotiation is also important in setting up the planned gift contract in the first place. When you decide to make a substantial gift, it’s important to meet with officers or representatives of the charity to which you intend to make your gift. 

This negotiation covers all five elements of a legal contract, including the amount (or percentage) of the gift, how the gift will be used and when it will be given. Negotiation can also cover any allowances to reduce or forgive the promised gift under specific circumstances, such as bankruptcy or large stock market losses. 

It’s important to know that your gift to a charity is a legally enforceable promise. Your heirs, should you pass away, will have to deal with the ramifications of that promise, including possibly appearing in court as part of a challenge during probate.

You can avoid this happening in several ways. If possible, make a gift during your lifetime so your heirs don’t have to deal with it at all. Make sure the amount of your gift is something your estate can fully fund or, better yet, follow advice to gift a percentage of your estate or assets within your estate.

Finally, seek advice from a competent estate lawyer before meeting with representatives from the charity to make sure your wishes are covered. (See also: To Donate or Not to Donate: Tips for Charitable Giving.)