Special considerations arise when making gifts to charities. Let us discuss.

First, what is the proper legal name and address of the charity? For example, naming the “Mendocino Humane Society” as a beneficiary would cause problems. There are at least three (3) different “not for profit” organizations in Mendocino which each use the words “Mendocino” and “Humane Society” as part of their name. If the bequest is large enough, this can result in litigation amongst the charities over who receives the bequest. Fortunately, this problem is easily avoided by contacting the charity to obtain their legal name and legal street address.

Second, is the bequest intended to be used in a specific geographic location (e.g., Northern California)? For example, a gift to Shriner’s Children (formerly known as, “Shriner’s Hospital for Children”) is a gift to an international organization and is not limited to use in any one specific area. A gift intended for use in the Northern California hospital would need to be made to, “Shriner’s Children Northern California”. Ask the intended charity for the exact wording needed to designate a specific member of a national organization as the sole beneficiary.

Moreover, it may be prudent also to say that the funds may not be shared with the nationwide organization. In BREATHE SO. CAL. V. AM. LUNG ASS’N (Case cite: A160785), California First District Court of Appeal, examined the plain language of three separate bequests and decided that the donors had intended to restrict the gift to use by a particular affiliate of the American Lung Association. The appellate court honored the donors’ intentions even though specific language excluding sharing with the national organization was not used.

Third, is the bequest intended to be used for a specific purpose? An outright gift to a charity is typically absorbed into the charity’s general fund where it may be used, amongst other things, to pay for the charity’s administrative expenses, i.e., overhead. If the gift is intended, for example, for be used only for research into cures for Cancer then a specifically so worded endowment fund is needed. The wording will include both the name of the endowment and the limitation, “for research into cancer cures”.

Fourth, when an ongoing endowment is involved, i.e., it lasts beyond one year, consideration should be given to how much of the endowment’s income and principal may be spent each year. If the endowment’s wording is silent on how much income and principal may be used each year, then expenditures are governed by California’s Uniform Prudent Management of Institutional Funds Act (UPMI) (codified as Section 18501 to 18510 of the Probate Code). Under section 18504(a), “… an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established.”

Fifth, when a charitable gift is intended to qualify for an estate tax or an income tax deduction, consideration needs to be given to eligibility to receive the tax deduction based on both the purpose of the gift and the tax status of the organization. That is, the tax deduction depends on both the use of the gift and the tax-exempt status of the beneficiary. The gift should say it is qualified on the condition that the beneficiary is still a qualified tax exempt organization eligible to receive such gift as a tax deductible gift, either for estate tax or income tax (as is relevant), at the time the gift is made.

The foregoing is a brief discussion of some issues that may need to be considered when making a significant charitable gift. For legal guidance consult a qualified attorney.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”