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In the past, nonprofits typically counted bequests as “expectancies” or “maturities.”
These expectancies usually included the amount of the expected bequest (when the details were known) or a conservative estimate (when the amount was not). Estimates were sometimes made using an average amount based on an organization’s experience.
Upon the death of the donor the bequest was moved from the expectancy list to what was often called the “maturity list” and was eventually reported for accounting purposes in the year the distributions were received.
Because of the fact that the largest number of bequests comes from smaller, non-taxable estates, the majority of bequests were never reported in IRS figures. Only charitable bequests from estates that fell over the federal exemption limit ($675,000 as recently as 2001) were reported on federal estate tax returns.
Many charities did not have a standard practice for counting the bequest for accounting purposes. Known bequest expectancies may or may not have been counted in campaigns or for other recognition purposes, whereas matured bequests were generally acknowledged in annual reports and other appropriate means only after they were received.
More than was expected
With no standard guidelines in place, it was not unusual for a single bequest to be counted several times for a variety of different purposes. For this reason, a decade ago the Financial Accounting Standards Board (FASB) attempted to standardize reporting of charitable bequests. (See
www.fasb.org for details.) Under these guidelines, unconditional promises to give are to be booked for accounting purposes. These include certain types of pledges, deferred gifts, and bequests where the donor has passed away (As they are unconditional following death, the charity has a right to receive them under state law.).
Yet some charities have continued to book charitable trusts and bequests for accounting purposes when not appropriate. For example, while qualified charitable remainder trusts are irrevocable, the majority of such trusts drafted today allow the donor to change the charitable beneficiary and therefore are not unconditional. Like a bequest, such charitable remainder trusts should not be reported under FASB rules until the trust terminates and the donor no longer has the right to change a particular charity’s interest in the trust remainder.
Similarly, charitable bequests by their very nature are conditional gifts because the donor may change his or her mind about the gift at any point until death. Occasionally, a donor may attempt to make a bequest unconditional by entering into a contract to make a bequest. This is most likely done in the setting of a capital campaign where the charity is relying upon the gift for a specific purpose. In such cases, some charities have included and reported bequest expectancies for campaign or recognition purposes even if they could not be counted for accounting purposes. While this practice may be desirable in the context of a campaign, when bequests are reported while still in the expectancy stage, care should be taken to assure that staff and volunteer leadership understand that bequests that are subsequently reported for accounting purposes upon receipt are not confused as “new” bequests if they have already been factored into the institution’s financial planning.
What FASB means for you
 So how should you be counting bequests? The answer depends on the purposes for which they are being reported. See chart
to the right.
Depending on the circumstances, it can thus be appropriate for the same bequest or trust remainder gift to be counted in a variety of ways. As bequests and other deferred gifts assume greater importance as a component of gift income, now may be the time for charities to review their gift counting and recognition policies to ensure they are consistent and in keeping with latest government and trade association guidelines.
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