Even well-intentioned planned gifts can go off course because of small oversights, outdated documents, or improper execution. Fortunately, many of the most common issues are also highly preventable when you know what to watch for. By recognizing a few recurring problem areas, you can help donors avoid unintended outcomes and ensure that their charitable goals are carried out as intended.
1. Problematic beneficiary designations
Beneficiary designations look simple on paper, but they’re a frequent source of unintended outcomes in planned giving. Because they operate outside a will and often bypass probate, small missteps can create significant consequences. If you know a donor has made or is planning a beneficiary designation, they may benefit from the following guidance:
• Keep beneficiary designations up to date. Because not all assets pass under a will, an outdated beneficiary designation can direct assets to an unintended individual or organization, even when a donor has updated the rest of their estate plan.
• Double-check the identification of a charitable beneficiary. Many charities share similar names. To avoid confusion or misdirected gifts, donors should use your organization’s proper legal name, address, and tax identification number when completing beneficiary forms.
• Encourage percentage gifts. A percentage gift can help avoid future problems. Donors who designate a specific dollar amount may not anticipate how significantly asset values can change over time. As a result, the gift may represent a much smaller portion of the estate than intended—or exceed the available asset value altogether.
2. Avoidable capital gains tax exposure
Most U.S. household wealth is held in noncash assets, creating substantial opportunities for charitable gifts of appreciated securities and real estate. In donor conversations about retirement, business succession, real estate sales, portfolio rebalancing, or other major financial transitions, you may have an opportunity to help donors avoid unnecessary tax exposure by discussing strategies such as:
• Make direct gifts of appreciated assets. Donors who transfer appreciated assets directly to charity can bypass capital gains taxes, whereas selling the assets first may reduce the charitable impact.
• Handle depreciated assets differently. When assets have declined in value, donors generally benefit more from selling the assets first, taking the loss, then donating the proceeds.
• Coordinate with advisors. Early communication with tax and financial advisors can help donors make more informed decisions before a major sale or liquidity event.
3. Faulty IRA gifts
IRAs are among the most powerful planned giving assets, but they are also frequently mishandled. Small errors can significantly undermine a donor’s intended charitable impact. When discussing IRA gifts, consider sharing the following guidance:
• Time the gift right. IRA owners must be at least 70½ to make a qualified charitable distribution (QCD) and receive the associated tax benefits. Attempting a QCD too early can eliminate the intended tax advantage.
• Make a direct transfer to charity. An IRA distribution will not qualify as a QCD if the donor receives the funds personally before donating them.
• Coordinate QCD reporting with tax professionals. Even with updated Form 1099-R reporting codes to help identify QCDs, proactive communication can reduce reporting errors and ensure that the gift is properly excluded from taxable income.
4. Bequest issues
A gift in a will is one of the most common ways donors make planned gifts, so sharing practical guidance can help produce an outcome aligned with the donor’s charitable goals.
• Ensure proper documentation and execution. Donors sometimes assume that their charitable intentions are clear even when they haven’t been properly documented in a will. Spoken wishes, prior donations, or historical giving patterns generally aren’t enough to establish charitable intent in probate court.
• Keep plans up to date. When a will hasn’t been updated for a while, it may no longer reflect a donor’s current assets, relationships, or charitable priorities. As a result, charitable bequests may no longer align with the donor’s overall intentions.
• Carefully consider gifts of specific assets. Even when an estate plan is current, specific bequests can fail if they are tied to assets that have been sold, transferred, or significantly changed before death.
One of your most valuable roles is helping donors translate charitable intent into effective gifts. By identifying common trouble spots early, you can guide donors away from preventable mistakes and help ensure that their philanthropic goals are ultimately fulfilled.
