Bequest or promise to give?

The latest view on not-for-profit accounting issues

Suppose you receive a letter from a donor that states she promises to give $1 million to your organization upon her death and the amount will be paid from her estate. Should this be recorded as a promise to give? The answer is most likely yes. But when a donor names your organization in a will to receive an amount upon her death, the amount is not recorded as a promise to give.

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What is the difference between a bequest and a promise to give?

A will can be changed at any time during the donor’s life and is therefore considered to be an intention to give, not a promise.  Because of this, it is not recorded until after the donor’s life ends. When a letter is provided that promises payment of a certain amount as of date of death, this is no different than any other written donor promise with a certain date set for payment. In addition, communicating a promise in a letter is likely legally enforceable. It is important to note that it generally would not be a promise to give if a defined amount was not included as this would provide too much uncertainty and would be more indicative of an intention to give instead. If the donor includes any conditions that must be met before the organization is entitled to the donation, then this may be a conditional promise to give that is not recorded until conditions are substantially met. In addition, you should be careful of any language that implies an intent (which does not imply definite certainty) versus a promise.

The donor is setting a time restriction by defining the payment date as the date of death. The income would be recorded as contribution income with donor restrictions where the restriction would not be released until the donor passes away. Since this timing may be greater than one year, the organization should determine an estimated payment date (using published mortality tables), determine an interest rate and calculate the net present value of the long-term promise to give.

Why is the “event” of death not determined to be a condition? Because it’s not really an event, or barrier that has to be overcome, as it is a certain thing to happen; it’s just a matter of when (unfortunately). Therefore, it is just a time restriction as to the date of payment.

If you have any questions about how to record a bequest or promise to give, please contact your Henry+Horne advisor.

Colette Kamps, CPA

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