Charitable Bequest Risk Factors

Date: August 20, 2013 Author: aque Categories: Latest News

A bequest to charity is considered to be a straightforward process. The will stipulates the correct legal name of the charity and the amount (or percentage) to be donated – and then it’s done. But there are other considerations that help ensure the gift achieves its intended purpose. At Aqueduct Foundation we discuss three “risks” with estate donors to assess if a legacy donor advised fund would improve the planning of the gift.

 The three “risk” factors are as follows:                                                                   

1. Timing Risk.   Bequests are paid out in the future after the death of the donor. That date may be five years after a will is executed, or it could be 25 years or more. It is impossible to predict the future and quite normal to make assumptions based on the charity’s current state. In the future, will the charity still be in existence, will it be well managed, and will it have the same priorities?  

2. Beneficiary Risk. Not all charities are created equal. Each charity is at a different age and stage. There are practical considerations such as funding stability, staffing, depth of volunteer leadership, and degree of effectiveness.   Over 90 percent of Canada’s 86,000 charities have annual revenue of less than $1 million. The majority are primarily run by volunteers. These entities typically do great charitable works, but stability, longevity and effectiveness are an ongoing struggle.

3. Value Risk. The average value of a bequest can be hundreds or thousands times a lifetime gift.   Does the charity have the policies, planning and sophistication to manage and utilize a large gift? What percentage of the charity’s operating budget does the value of the bequest represent?   Is continued annual funding more appropriate and useful? What is the right amount so that the charity can improve – maybe start a new program – but not “too much”.   A very large gift can trigger charity paralysis, internal politics or excess conservatism that will reduce charitable impact.

Discussing these three factors helps determine if the best plan is a simple outright gift or if a donor advised fund would be helpful to provide discretion about future decisions or a longer distribution schedule. Aqueduct Foundation provides legacy funds that prioritize charitable purpose over named charities. Aqueduct also offers unrivalled fund duration options. A legacy fund can make immediate payouts, spend down over a term, be a long-term endowment, or a combination of the terms.

Malcolm D. Burrows                                                        Toronto 1-866-216-2116

Rosaline Chan