The Art of Bequest Planning

The Art of Bequest Planning

By Emma Nisbet

One of the major considerations in developing an estate plan is determining who or what will benefit from the legacy that you leave behind.

Increasingly, people are wishing to provide for a bequest for charitable of philanthropic purposes in their will.

However, to ensure your wishes are upheld, it’s important to have a properly tailored estate plan. In preparing an estate plan featuring a bequest, there are a number of key considerations, namely:

  • The type of bequest.
  • Intention of the bequest
  • Making sure your will is prepared correctly.

Type of bequests

There are two main types of bequests, a pecuniary legacy or a residuary gift.

A pecuniary legacy is a gift of a sum of money and is paid prior to the calculation of the residue of the estate.  Providing for a payment of a pecuniary legacy is preferable where there is a desire that a beneficiary receive a set amount irrespective of the total value of the estate.

A residuary gift is a gift of what remains after all other gifts have been met and payment of estate expenses has occurred. As the gift is not a set amount, the quantum of the gift will depend on the assets of the estate at the time the gift is to be made. This may be desirable where a person’s estate is likely to fluctuate substantially during their lifetime and there is an overarching desire that the beneficiary share in a certain proportion of their overall estate.

Intention of the bequest

When providing for a bequest in a will, it is important to consider what the intention is when making the bequest. For example, with a philanthropic gift is it for:

  • the general purpose of the organisation; or
  • a specific purpose.

If there is a desire that the bequest be for a specific purpose, is there flexibility with the drafting of the will to enable the gift to still occur, if the specific purpose is unable to be fulfilled (for example, a gift is given for the specific purpose of funding an exhibition that is not in existence at the time that the gift comes into effect).

It can be beneficial in certain circumstances to consider framing any desires as to the gift’s application as a wish (vs requirement). This enables a level of flexibility in the application of the gift.

Preparation of the will

When preparing your will to provide for a philanthropic gift, there are a number of key aspects that need to be considered:

  • Is the correct entity described? Sometimes there are multiple entities within the ambit of an organisation. There may be potential adverse taxation implications if the funds are not paid to the correct entity within an organisation.
  • Is it intended to be added to the general pool of the charity or organisation or is it intended that a separate charitable trust is established? If it is desired that a separate trust is established, consideration should be given to:
    • whether the funds are sufficient that it would warrant a separate trust, including all the incidental operating expenses that are attached (such as the preparation and audit of financial accounts).
    • If the terms of the will adequately provide for the establishment of a separate charitable trust.
  • Does the will adequately provide for a situation where the charity/entity within an organisation may cease to exist?
  • Who within the organisation can give sufficient discharge to the gift?

Ultimately, there is an obligation on the executor to uphold the terms of the will. Therefore,  if there are difficulties in the ability to administer the estate in accordance with the will (such as due to an incorrect entity being named), then it can result in significant cost to the estate in having to remedy this issue.

Accordingly, it is good practice to keep your will under regular review and where a philanthropic gift has been provided for, ensure that the entity and the purpose remain current.

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