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Probate Primer for PGOs

Planned Giving Today

Originally Published in Planned Giving Today.


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When a charitable organization discovers that a donor has died leaving a testamentary gift, its role changes from that of gift planner to that of beneficiary with an interest in probate administration. A key task of the planned giving officer and counsel will be to develop reliable guidelines for coping with the probate process. Suggested here are some of the fundamental considerations involved in creating sound probate procedures for the charitable organization.

To help minimize the daunting prospect that most testamentary gifts will come as a complete surprise to the planned giving officer, the organization’s probate policies should include an emphasis on encouraging potential donors and their attorneys to advise the organization of planned testamentary gifts. The planned giving officer should keep a file of these potential gifts, and should consider requesting copies of the wills themselves, or, perhaps more advisably, copies of excerpted will language creating the gifts. In circumstances in which such requests might be awkward, the bequest file should at least include a memorandum of the telephone conference or other contact in which the potential gift was communicated.

Notice of Probate

While the planned giving officer may learn of the death from the relatives or friends of the donor, more commonly the attorney for the donor’s executor will first communicate the news. While the probate laws of the different states vary considerably, most states require that testamentary beneficiaries receive formal notice of the admission of the will to probate and appointment of the executor, sometimes called the personal representative or administrator. The immediate response of the planned giving officer to such notice will depend in part upon the relationship with the decedent, the executor, or counsel for the estate.

Among the organization’s potential responses will be a letter of condolence and recognition to the executor and the donor’s family; an announcement in the organization’s bulletin, which can be shared with the family; a personal telephone call or visit to the family; a telephone call to counsel for the estate; and a conference with the executor and counsel.

Etiquette usually requires that the planned giving officer’s attitude communicate gratitude and helpfulness. The organization must be ever sensitive to potential family animosity. After all, the organization is probably receiving a portion of the estate that would otherwise have passed to the decedent’s family. Above all, the organization should avoid appearing to be a nuisance, or worse, greedy. This is by no means to suggest that the organization should not take whatever steps may be necessary to ensure that the decedent’s wishes be fulfilled, or that the gift to the organization be received.

Common Elements

Despite the wide variety among probate laws of the various jurisdictions, several elements are common to most probate proceedings. First, the court determines that the will is the final valid will of the decedent, and appoints the executor designated in the will. Next, the executor takes steps to ascertain and notify estate beneficiaries and creditors. If the charitable organization receives a specified item of property or a designated sum of money, it is said to have received a “specific gift.” The organization is said to be a “residuary” beneficiary if it receives all or a portion of the assets remaining after specific gifts have been made. A specific` gift of cash or personal property is termed a “bequest,” while a specific gift of real property is termed a “devise.”

Frequently there is a limited time period within which creditors must file their claims. An inventory of estate assets must typically be filed. After creditors’ claims and taxes have been provided for, the estate assets can be distributed to the beneficiaries, and the probate proceedings are closed. The probate process can take anywhere from several months to a number of years, but a typical term is probably twelve to twenty months.

Patience

Patience is yet another virtue which the planned giving officer should develop in dealing with the probate process. The organization should not expect to receive any distribution before the estate is ready to be closed. Any earlier distribution is probably unlikely, as executors court personal liability if they distribute the estate before satisfying creditors’ claims and paying death taxes.

Consistent with its role as grateful facilitator, the organization should bear in mind that the level of its involvement in the particular probate administration will likely be perceived by the executor and counsel as falling somewhere on the spectrum between friendly on the one hand, and hostile on the other. On the friendly side of this spectrum are polite and infrequent but regular requests for status reports. A subtle way to keep tabs on the probate administration is to review the court file at the county courthouse periodically.

Hostile acts, which may of course be justified depending on the circumstances presented, include delivery of nasty or threatening letters to the executor or counsel; seeking court orders regarding some aspect of the probate administration; challenging the executor’s fees; suing for an accounting; and suing the executor for breach of fiduciary duty. Somewhere in the middle of the spectrum are probably the filing of a request for special notice of proceedings, which will require that the organization receive notice of the principal events of the estate administration, and the organization’s attendance at probate hearings.

Danger Signals

Danger signals sometimes appear that should alert a planned giving officer to the need for greater scrutiny of the probate administration, including taking steps which would in other circumstances fall on the hostile end of the spectrum. If family members, possibly disgruntled by the decedent’s gift to the charity, file large creditors’ claims with little or no apparent basis, they may be trying to recoup by this means what they feel they have lost through the decedent’s generosity. Similarly, if an executor charges extremely high fees which seem out of proportion to the duties involved in the administration, these may be questioned or challenged. Long delays in the probate administration, particularly when linked with nonresponsiveness of the executor or counsel to requests for status reports by the charity, are often a serious danger signal.

Perhaps the greatest threat to the organization’s testamentary gift may be the filing of a will contest. If a family member received a larger portion of the decedent’s estate under a prior will, he or she may assert that the decedent was mentally incompetent at the time the final will was signed, or that the decedent was the victim of undue influence exerted by or on behalf of the charitable organization. Any of these danger signals should prompt the planned giving officer to involve competent counsel for the organization immediately. The State Attorney General’s Office oversees the affairs of charitable organizations, and the planned giving officer might also consider alerting that office in such circumstances.

IRS Circular 230 Disclosure: To the extent this message contains tax advice, the U.S. Treasury Department requires me to inform you that any such advice, whether in the body of the message or in any attachment, is not intended or written by my firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from my firm relating to tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer.

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