How Does UF Handle Your Clients’ Deferred Gifts? A Q&A with John Knight, Senior Legal Counsel

We often work closely with estate, tax, and financial planning advisors to create planned giving strategies for our donors, but what happens when a donor passes away and the UF Foundation receives the gift? We sat down with John Knight, Senior Legal Counsel for the UF Foundation, for some insight.

Q: What happens when the UF Foundation receives a bequest from a will, trust, or retirement plan? Walk us through the process.
A: In most cases, donors notify us when they have included a bequest to UF in their estate plan, so we have some idea about the gift we will be receiving. When a donor passes away, it can take several months or longer before we learn about the death or are contacted by the person handling the administration of the estate. Once we have been notified, UF is a beneficiary just like any other beneficiary and waits for the probate administration to unfold. When UF is a residuary beneficiary, we are usually able to determine that we are receiving the correct amount from the estate without a formal accounting and thus waive it. Once the UF Foundation receives the gift, it is either allocated to an existing fund or a new fund is created, depending on how the donor has designated the gift. Donors can designate a bequest gift to support an existing fund at UF or, depending on the amount, they can create a new fund for a specified purpose.

Q: What are the benefits of gifting non-probate assets to charity?
A: First, the amount we receive is not reduced by personal representative and attorney fees. We were once the sole beneficiary of an estate that had about $4,000,000 in an investment account. The attorney for the estate was also the personal representative, and we ended up paying substantial fees that could have easily been avoided had some of the investments been owned in a pay-on-death account. Pay-on-death accounts should be strongly considered, especially if a charity is the sole beneficiary. In many cases, when a donor is considering which asset to leave to charity, it will be better for both the donor and UF to consider naming UF as a beneficiary of a non-probate asset like a retirement account. It reduces the tax liability on the retirement assets since the beneficiary is a tax-exempt entity, and by leaving other assets such as appreciated securities to family members, the donor’s heirs receive a stepped-up basis to the fair market value of the property at the donor’s death, and they avoid having to navigate the withdrawal rules for inherited retirement accounts brought about by the Secure Act and Secure Act 2.0. Second, we can usually obtain distribution much quicker because there is no waiting on the estate administration process. The probate process usually takes a minimum of six months to complete, but in some cases it can take a year or longer. Non-probate assets are more likely to be put to their charitable purpose more immediately.

Q: You mentioned earlier that donors usually notify us of their intention to make a gift through their estate plan. Why is this important?
A: It is very helpful if donors provide us with as much information about a bequest as possible while they are alive. It is not unusual for it to take up to two years after a donor’s death for us to be notified. If we know about a gift, we can contact the personal representative or the financial institution in the case of a beneficiary designation or pay-on-death account if we have not been notified after a few months. It is also helpful for us to know in advance how the donor wants the gift to be used. In some cases, the purpose that the donor had in mind may not be the most effective use for the gift, and it benefits both the donor and UF to have those conversations during the donor’s lifetime.

Q: How can a donor’s advisors help to make the process more efficient?
A: Advisors can provide us with contact information for the person or entity that will serve as the personal representative. If the donor’s gift is to be made via a beneficiary designation or pay-on-death account, it would be useful if we were provided with a contact at the financial institution where the account is located. Once the probate and/or trust administration has started, ideally we would be notified within three months of the donor’s death. Also, it is very helpful to keep us informed as the administration progresses.