Bequests and the bottom line: practical tips for charities

Key takeaways

Gifts in wills represent a significant and sustained source of funding for charities in Australia. These charitable bequests often reflect decades of stewardship and relationship-building between a charity and its supporters. Yet only 6.5% of Australian wills currently include a charitable bequest, and of those that do, a meaningful proportion either go unnotified or are reduced before reaching the intended charity.

An estimated $40 million in charitable bequests goes unnotified or unpaid every year. Some of that loss is unavoidable, but much of it results from issues that charities can anticipate and, in some cases, address. Understanding why gifts are lost and what charities can do to protect them is increasingly important for gifts in wills teams.

This article outlines some of the common issues and practical steps charities can take to protect bequests and honour the final wishes of their supporters.

Why gifts can go missing

Charitable gifts can fail to reach their intended beneficiary for a range of reasons. Some are administrative, such as the charity being incorrectly named in the will, making it difficult to identify or locate. Others relate to the dynamics of estate administration, such as where there are no family beneficiaries, which can sometimes mean that charitable gifts are not identified or are subject to lengthy delays in distribution. In some cases, gifts are simply overlooked or not paid.

Family provision claims

Family provision claims remain a significant source of bequest loss. When a family member challenges a will seeking greater provision from the estate, charities often find themselves at a disadvantage. Research suggests that such claims succeed against charitable beneficiaries in approximately 78% of cases, particularly where charities are the primary residuary beneficiaries.

However, charities do not need to accept this passively. Remaining engaged in settlement negotiations, and where possible banding together with other charities named in the estate to present a united position, can reduce costs and strengthen negotiating position.

When gifts fail (cy-près applications)

Sometimes a charitable gift cannot be carried out as the donor intended. For example, if a charity named in the deceased’s will no longer exists or the specified purpose is no longer feasible. In these cases, the court may apply the cy-près doctrine to redirect the gift to a similar charitable purpose. However, these applications are time-consuming and costly. Charities can reduce this risk by encouraging donors to express their bequest intentions in broad terms. The more specific the conditions attached to a gift, the harder it becomes to administer over time as circumstances, community expectations and the charity’s operations evolve.

The term 'cy-près' derives from French and means 'as near as possible'. It is an equitable doctrine that enables the Court to vary the original purposes of a charitable trust (including a trust created in a will) either because those original purposes cannot be carried out due to initial or supervening impossibility, or because the original purposes have been exhausted and a surplus remains.

Tax considerations

Executors do not always maximise the value of estates by taking advantage of a charity’s deductible gift recipient (DGR) status. Research indicates that nearly half of bequests come from estates containing shares as an asset, and real estate features in more than half of estates leaving charitable gifts. Both asset classes can attract capital gains tax if handled incorrectly. Handled correctly, a charity’s DGR status may eliminate the liability entirely, benefiting all beneficiaries of the estate.

However, not all charities hold DGR status, so it is important to seek appropriate tax advice early to understand how these rules will apply to the specific bequest.

Practical steps for charities

While challenges to bequests cannot always be prevented, charities can take a proactive approach to protecting their bequest income and honouring donor intent:

1. Be proactive: Seek information from executors and don’t be afraid to ask questions about the estate.
2. Stay informed: When notified of a bequest, seek information from executors about the estate, including its structure, other beneficiaries and likely timeframes. Charities are entitled to ask questions and should not hesitate to do so.
3. Get advice early: Seek specialist bequest advice early, especially where an estate is contested, there are no family beneficiaries, or complex tax or legal issues arise.
4. Monitor probate: For confirmed bequestors who have passed away, consider establishing a process for periodically checking probate records. This can help identify whether a gift has been left and whether the estate is being administered.
5. Be aware of tax-saving opportunities: Look for assets where the charity’s DGR status could eliminate or reduce capital gains tax, and raise this with the executor. This can benefit all estate beneficiaries.
6. Don’t shy away from being involved in settlement discussions: If a family provision claim is raised, consider staying involved in settlement negotiations rather than accepting whatever is offered.
7. Join forces: Where multiple charities are named, consider presenting a united position to reduce costs and strengthen the collective negotiating position.

By engaging early and maintaining clear communication throughout the estate administration process, charities are better positioned to identify potential issues before they escalate and to advocate effectively for the donor’s wishes.

Further information

Our specialist teams regularly advise charities and not-for-profits on bequest administration, estate disputes, executor conduct and obligations, family provision claims and tax-efficient structuring.

For questions about a particular estate or to discuss your charity's approach to bequest administration, please contact the specialist Charities + Social Sector or Disputes + Investigations teams.