The question of designating a contingent beneficiary for charitable giving within a trust or estate plan is a crucial one, particularly given the fluctuating landscape of non-profit organizations and the longevity of many trusts. It’s a practical concern that many clients of Ted Cook, an Estate Planning Attorney in San Diego, raise – what happens if the charity named in their will or trust ceases to exist by the time assets are distributed? The short answer is yes, you absolutely can and should assign a backup charity, and Ted strongly advises all clients to do so. Failing to plan for this eventuality can lead to assets being distributed in a way that doesn’t align with the client’s philanthropic intentions, potentially to their heirs instead, or even to the state’s escheatment funds. Approximately 10% of registered charities dissolve each year, making this a surprisingly common issue.
What happens if my chosen charity closes down?
When a charity named in a will or trust dissolves, the distribution outlined for that organization becomes problematic. Courts generally interpret these situations as a failure of the designated beneficiary. Without a contingency plan, the assets intended for charity can revert back to the estate, and be distributed according to the estate’s remaining instructions – which may not include charitable giving. This essentially negates the client’s original wish. Ted often explains this using the example of a client who passionately supported a local marine conservation group. Years later, the group merged with a larger national organization, effectively ceasing to exist in its original form. Had the client not included a secondary beneficiary, the funds would have gone to their children instead.
How do I name a backup charity in my estate plan?
The process of designating a backup charity is relatively straightforward and is integrated into the drafting of your trust or will. Ted recommends using specific language that clearly outlines the order of distribution. For example, the document could state: “I direct my trustee to distribute X dollars to [Primary Charity]. If, at the time of my death, [Primary Charity] no longer exists, then the trustee shall distribute said funds to [Backup Charity].” It’s important to be precise and avoid ambiguity, providing the full legal name and tax ID number for both organizations. Ted uses a clause in his documents that includes a ‘cure’ period – a short timeframe where the trustee can verify the primary charity’s status before automatically diverting funds to the backup. He also recommends revisiting these designations every 3-5 years to ensure the chosen organizations remain viable and aligned with the client’s current values.
Could my trustee make the decision if I don’t specify?
While a trustee has a fiduciary duty to act in the best interests of the beneficiary (in this case, the intended charitable purpose), relying on their discretion without explicit instructions is risky. Some states have laws allowing a court to ‘cy pres’ – essentially modifying the charitable intent to align with a similar purpose if the original charity is defunct. However, this isn’t a guaranteed outcome, and the court’s interpretation might not match your vision. I recall a client, Mrs. Eleanor Vance, who envisioned a legacy gift to a small arts education program in her hometown. She tragically passed away without a backup charity designated. The program had shut down five years prior due to funding cuts. Her family, not fully aware of her philanthropic intentions, contested the distribution, arguing the funds should go to her grandchildren. The resulting legal battle was costly, time-consuming, and ultimately led to a compromise that significantly reduced the charitable contribution.
What if I want a more complex contingency plan?
For clients with significant charitable giving plans, Ted often designs more sophisticated contingency plans. This could involve designating a committee to select a replacement charity based on specific criteria, or creating a charitable remainder trust where the income benefits a designated charity for a set period, with the remainder going to another charity upon the expiration of the term. He recently worked with Mr. and Mrs. Harrison, who were passionate about environmental conservation. They established a trust with a primary beneficiary dedicated to rainforest preservation, and a backup beneficiary focused on ocean cleanup. They also included a clause allowing the trustee to select a third charity aligned with similar environmental goals if both primary and secondary options ceased to exist. This proactive approach ensured their legacy would continue to support causes they deeply cared about. Proper planning, as Ted emphasizes, isn’t just about transferring assets; it’s about ensuring your values and intentions endure, even after you’re gone. It’s about creating a lasting impact, knowing your generosity will reach those who need it most, regardless of unforeseen circumstances.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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