Not All Charities Are Very Charitable
Last week the Tampa Bay Times, Center for Investigative Reporting and CNN released a report on America’s Worst Charities. While the fraud and abuse uncovered is disturbing, the report provides a stark reminder of the importance of performing due diligence prior to making a charitable donation or bequest and properly identifying charities in your estate planning documents.
For many philanthropic clients, their last donation takes the form of a charitable bequest in their Last Wills and Testaments or Revocable Living Trusts. The purpose of any charitable bequest is to support an organization in furthering its mission, but a wrongly identified charity can lead to undesirable consequences that thwart the testator’s intent.
If you misidentify a charity under your Will and the named charity turns out to be an existing organization, the Personal Representative is required to fulfill the bequest even if he or she believes it was drafted in error. As the recent special report by the Tampa Bay Times noted, many of the “worst” charities intentionally mimic the name of a well-established organization with a similar charitable purpose, but suffer from waste, fraud, and mismanagement that results in very little funds being used to further a charitable purpose. To avoid this outcome, you should take the following actions prior to making a charitable bequest:
1. Perform Due Diligence. If you are unable to get involved directly with a charity, there are many watchdog groups that provide reviews and financial information that may give you a better understanding of the of the charity and how donations are used to further the organization’s charitable purpose. These groups include Charity Navigator, GuideStar and the BBB Wise Giving Alliance. In addition, if you are interested in keeping your donations close to home, community foundations, such as the Seattle Foundation, are a valuable resource for information with advisors familiar with local charities.
2. Find the Charity’s Official Name. As mentioned above, some charities intentionally mimic the names of well-known charities in order to divert funds to their own organizations. This is especially prevalent in certain nonprofit sectors, such as cancer research. In addition, just like for-profit businesses, some charities operate under different names than their incorporated names or change their names. For example, the Rural Development Institute is better known by its registered DBA, Landesa, and the Juvenile Diabetes Research Foundation recently rebranded and is now officially known as JDRF International.
To avoid confusion, don’t just give your attorney the name of a charity, provide a link to the charity’s website or other printed material. This will help your attorney locate and identify the official name of the charity and ensure it is correctly identified in your estate planning documents. If there is any room for confusion, include additional information in the bequest such as the location of the organization’s principal office, other names used by the organization, or the organization’s Employer Identification Number (EIN).
3. Confirm the Charity is Eligible for a Charitable Deduction. For many clients, the charitable deduction against estate taxes is a major consideration when deciding to include a charitable bequest in their estate planning documents. Though many organizations operate as nonprofit corporations, in order to receive the charitable estate tax deduction for a bequest, the organization must have been granted tax exempt status by the Internal Revenue Service. For an up-to-date list of organizations eligible to receive tax-deductible contributions, visit Publication 78. Bequests to churches or other religious organizations may also be eligible for the charitable estate tax deduction, despite not being listed in Publication 78.
If you have any questions or would like to consider incorporating a charitable bequest in your estate planning, please contact an attorney in our Estate Planning and Probate Group.