Managing Bequests & Gifts in Wills: A Guide for NFPs

Introduction

For not-for-profits (NFPs), a charitable bequest represents a powerful opportunity to secure vital long-term funding and allow donors to create a lasting legacy. Including a gift in a will enables individuals to support causes they are passionate about for future generations, yet research shows this remains a significantly untapped resource for many organisations.

Effectively managing these gifts is crucial for any NFP board to honour a donor’s intentions and avoid common legal and administrative pitfalls that can lead to lost funding. This guide provides essential information on best practices for encouraging and managing gifts in wills, ensuring your NFP is well-prepared to handle these important contributions.

Understanding the Different Types of Bequest Donations

An Overview of Residual Pecuniary & Percentage Gifts

A residual bequest is one of the most common ways to leave a charitable gift in a will. This type of gift consists of the remainder, or a portion of the remainder, of an estate after all other specific gifts to loved ones, taxes, and expenses have been paid. This ensures that family and friends are provided for first.

Another common type of gift is a pecuniary or specific bequest. This involves leaving a predetermined sum of money or a particular asset, such as:

• Property
• Shares
• Jewellery

to an NFP organisation. While simple to implement, this fixed amount does not adjust if the value of your estate changes over time.

A percentage or fractional bequest allows a donor to leave a nominated percentage of their total estate to a charity. This approach has the advantage of adjusting with the value of the estate, ensuring the gift remains proportional to the donor’s overall wealth. This method helps take care of loved ones while also leaving a lasting legacy that grows as the estate grows.

Exploring Other Forms of Estate Gifts

Beyond the most common forms of bequests, donors can structure their gifts in several other ways. These alternative methods provide flexibility and can be tailored to specific philanthropic goals and family circumstances.

Other forms of estate gifts that your NFP may receive include:

Type of Gift	Description
Whole Estate Gifts	A donor leaves their entire estate to a charitable organisation, providing substantial long-term support.
Gifts of Assets	Specific items of value are bequeathed, such as real estate, vehicles, shares, or valuable personal items.
Reversionary Bequests	A loved one benefits from an asset during their lifetime, after which the asset is transferred to the nominated charity.
Life Insurance or Superannuation	A charity is nominated as the beneficiary of a life insurance policy or superannuation fund, often bypassing probate for a quicker payout.

Best Practices for Your not-for-profit to Encourage & Manage Charitable Gifts

Have a Clear Purpose & Make It Easy for Donors to Leave a Gift

Clearly communicating your NFP’s purpose and mission is essential for encouraging charitable bequests, making it crucial to ensure your charity’s purpose is clear enough for impact and compliance. Donors are more likely to leave a gift in their will when they understand how their contribution will create a lasting legacy. Using case studies can effectively demonstrate the long-term impact a bequest can have on your organisation’s work.

To facilitate the process for potential donors, it is crucial to make key information readily accessible on your website. This allows individuals who wish to remain anonymous to include your NFP in their estate plan without needing to contact you directly.

At a minimum, your website should clearly display:

Website Information	Purpose
Your full legal entity name	Ensures the gift is correctly identified and legally valid.
Your Australian Business Number (ABN)	Helps prevent confusion with other organisations and confirms the NFP’s status.
Standard bequest wording	Simplifies the will-drafting process for donors and their solicitors.
Contact information	Allows donors to ask questions or discuss their intentions directly with the organisation.

Promote Structured Giving & Long-Term Philanthropy

Encouraging donors to consider structured giving, such as establishing a charitable trust, can be a valuable part of a long-term fundraising strategy. This approach offers significant benefits for both the donor and the NFP, providing a sustainable source of support for your charitable causes.

A charitable trust structure, often established through a testamentary trust will, can be set up to provide a recurrent income stream for your organisation and any other beneficiaries the donor wishes to support. Moreover, promoting structured giving can help your NFP foster enduring relationships with philanthropic families. These structures can be established in perpetuity, ensuring:

• A connection that spans multiple generations
• An enriched family value system
• A collaborative spirit of giving

Maintain Open Communication with Your Donors

The best outcomes for a charitable bequest are often achieved when NFPs have open and transparent conversations with donors about their intentions. Discussing a planned gift allows your organisation to:

• Confirm that it can accept the donation
• Confidently realise the donor’s wishes
• Honour their philanthropic goals
• Avoid future complications

Engaging with donors about their legacy also provides an opportunity to guide them on how to structure their gift effectively. For instance, you can encourage them to include a non-binding statement of wishes rather than imposing rigid conditions in the will. This approach provides flexibility to accommodate potential institutional changes in the future while still respecting the donor’s intentions.

Overly restrictive terms can create administrative burdens, such as forcing a charity to establish a separate trust for a small gift. By maintaining open dialogue, both parties can work together to ensure the gift achieves maximum impact while remaining practical to administer.

Key Legal & Administrative Pitfalls for Your NFP Board

The Risk of Missing Gifts & Unfulfilled Bequests

A significant challenge for the NFP sector is the failure of promised charitable bequests to materialise. Research has revealed that millions of dollars in gifts in wills are lost each year, preventing funds from reaching their intended charities and honouring the donor’s wishes to leave a lasting legacy.

This issue, often referred to as “missing gifts,” stems from two primary causes:

• Errors in legal processing
• Executors deciding not to transfer the funds to the designated NFP

Studies indicate that an estimated three out of every 100 wills containing a charitable bequest are never paid. This results in a substantial loss of revenue that could otherwise support vital community work.

Navigating Vague or Overly Restrictive Bequest Conditions

Charities often face difficulties when the wording of a will is ambiguous or includes overly restrictive conditions. A common pitfall occurs when a will dictates that a gift is “to be held on trust” and attaches one or more specific conditions. Such wording can create significant administrative and governance burdens for the NFP.

This type of restrictive language can legally compel an NFP to establish a completely separate charitable trust to manage the funds. This process often involves:

• Maintaining separate financial statements
• Conducting annual audits
• Establishing distinct investment strategies and governing documents
• Registering the new trust with the Australian Charities and Not-for-profits Commission (ACNC)

These requirements can create a substantial administrative overhead that may not be justified by the size of the gift. To avoid this, it is best practice to encourage open conversations with donors about their intentions. This approach allows for flexibility that honours their wishes without creating unnecessary operational challenges.

Core Financial Governance Duties for Your not-for-profit Board

Ensuring Responsible Financial Management Under ACNC Governance Standard 5

Under the Australian Charities and Not-for-profits Commission’s (ACNC) Governance Standard 5, board members, referred to as “Responsible Persons,” have a legal duty to manage their charity’s financial affairs responsibly, which requires strategic financial oversight aligned with ACNC governance standards. This obligation requires every board member to possess sufficient financial literacy to read and understand the organisation’s accounts and financial reports.

This level of understanding is essential because it enables board members to make informed decisions about the NFP’s resources, including any charitable bequest. Importantly, this responsibility cannot be entirely delegated to a treasurer or another member with financial expertise. Each Responsible Person must apply their own judgment to the financial statements they approve.

At a minimum, all board members must be able to:

• Act with reasonable care and diligence in all financial matters
• Understand the potential financial impact of any decision the board makes
• Use financial information to determine if the charity is solvent and able to pay its debts

Implementing Strong Financial Controls for Bequest Management

Establishing robust financial controls is essential for protecting your NFP’s assets, particularly when managing a significant gift in a will. These systems help ensure that funds are used effectively to create a lasting legacy while being protected from misuse or fraud.

Key financial controls for your NFP to implement include:

Financial Control	Description & Implementation
Budgets and Regular Reporting	Create an annual budget and track performance against it. The board should regularly review up-to-date financial reports to monitor financial health and oversee bequest funds.
Multiple Signatories	Require more than one person to authorise payments and receipts, adding a crucial layer of supervision and accountability for all financial transactions.
Clear Spending Delegations	Establish a clear policy defining spending limits for staff and management, with amounts above a certain threshold requiring board approval.
Secure Financial Information	Protect digital and physical financial assets by safeguarding online banking passwords, securing keys to safes, and restricting access to sensitive information to authorised personnel.

The Duty to Avoid Insolvency & Manage Conflicts of Interest

A primary duty for board members under ACNC Governance Standard 5 is to prevent the charity from operating while it is insolvent. A charity is considered insolvent if it is unable to pay all its debts as and when they become due.

Board members must diligently monitor the organisation’s cash flow and ensure its assets exceed its liabilities to maintain long-term viability. This ongoing vigilance is crucial for the sustainable operation of the charity.

Another critical obligation is to disclose and manage any actual or potential conflicts of interest. A conflict arises when a board member’s personal interests, or their duties to another organisation, could improperly influence their decisions.

This disclosure requirement is crucial for ensuring all financial decisions are made fairly and in the best interests of the charity, thereby protecting its integrity and maintaining public trust.

Conclusion

Effectively managing a charitable bequest is vital for NFPs to honour a donor’s lasting legacy and secure crucial long-term funding. By understanding the various types of gifts, implementing best practices, and navigating key legal pitfalls and financial duties, NFP boards can confidently uphold their governance responsibilities.

To help your NFP manage these important gifts in wills with confidence, contact LawBridge’s expert not-for-profit lawyers today. Our specialised legal guidance helps NFP boards navigate the complexities of charitable bequests and establish robust governance frameworks to protect their mission.

Frequently Asked Questions