It is advisable for charities to consider the advisability of formally adopting administrative procedures and protocols to govern their management of bequests and other testamentary gifts. Generally, any one or more of three different aspects of bequest management can be dealt with in such a policy:
- the process to determine whether a particular testamentary gift should be accepted;
- procedures with respect to ongoing review and oversight of the estate administration process prior to the charity's receipt of the testamentary gift in question; and
- policies for how contentious estate administration matters will be dealt with by the charity.
The process involved in determining whether a testamentary gift is acceptable will be similar to that of an inter vivos gift, but should include the receipt and review of the Will or testamentary instrument, paying particular attention to the nature of gift and any conditions or restrictions applicable thereto.
For example, the review of the Will or testamentary instrument should ask the following questions:
- Are there any conditions attached to the gift that must be satisfied prior to or subsequent to acceptance?
- Is the gift subject to a prior life interest, and if so, are there restrictions in the use of income and/or capital during the lifetime of the life tenant?
- Are there any conditions and/or restrictions with respect to the charitable objects or purposes to which the gift can be applied by the charity?
Finding the answers to these questions will allow the charity to determine whether the testamentary gift is acceptable to the charity and as such, it may be important that these questions are outlined in the charity's bequest management policy as part of the standard due diligence carried out by the charity. In this regard, the bequest management policy should alert the persons conducting such due diligence that the value of the charity's interest in the testamentary gift may be reduced by certain amounts, such as the estate's liabilities, taxes, costs of administration, as well as any potential spousal or dependants' relief claims.
Procedures with respect to the ongoing review and oversight of the estate administration process prior to the charity's receipt of testamentary gifts will depend on the administrative capacities of the charity in question. For example, the charity may wish to designate a particular person in the organization to be in charge of monitoring testamentary gifts. In addition, the charity may wish to prepare precedent documents to deal with certain aspects of the estate administration process. For example, most executors and trustees, prior to distributing funds to the charity, will request that a release be signed. In this regard, the charity could craft its own form of release to present to the executors and trustees rather than having to assess each release presented to it on a case by case basis.
In addition, a determination will have to be made as to the role the charity will play in reviewing the administration of the estate and at what intervals it will require regular reporting and accounting. This determination will differ depending on the charity's interest in the estate. For example, if the charity's interest in the estate takes the form of a cash legacy, the executors and trustees cannot be compelled to pay the legacy before the first anniversary of the death of the deceased (i.e., during the "executor's year). However, if the executors delay longer than the executor's year, interest will be payable to the charity on the amount of the cash legacy. However, if the charity's interest is in a portion of the residue of the estate, different considerations may be relevant. For example, the timelines for the charity's receipt of the gift will be extended, as the estate administration process, and the filing and processing of all of the relevant tax returns and clearance certificate requests, will take additional time. The charity will need to determine in what circumstances it will request a partial distribution pending the finalization of the administration, as well as the frequency of its communications with the executors and trustees during this period.
The policies and procedures of a charity relating to bequest administration and management will differ depending on the sophistication, size and capacity of the charity in question. However, it may be important that at least some of the issues arising with respect to this subject matter be adverted to in a charity's gift acceptance policy so as to ensure that the charity's staff, management, officers and directors are alerted to some of the necessary considerations and issues that can arise.