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Advancing Gifts to Charities

May 2014

Many clients and others have gifts to charities as part of their Will or trust. Typically these are given at the death of the surviving spouse or, perhaps, in the event they are not survived by children.

I am often asked how individuals can accelerate the gifts to the charities but not have those gifts duplicated by the lifetime gift when the gift is also set forth in the trust. This is particularly true, and troublesome, when one spouse has died and the gifts are directed from the irrevocable portion of the trust.

One way of accomplishing a "no duplication of gift" result is to originally direct that the gift be expressly diminished by any lifetime gift. That language should be in the trust agreement. Of course, many people make gifts to charities that are not intended to reduce their dispositive gift at death. For example, if you desire to make a gift to charity (church, museum, children's hospital or otherwise) and it is a charity to which you typically make annual gifts, then it is important to distinguish the annual gifts from an advancement of the testamentary gift.

California law expressly anticipates such advancements and sets forth criteria for treating the advance gift as an offset to the testamentary gift.

Section 21135 of the California Probate Code sets forth four criteria to be met for a lifetime gift to be treated as satisfying in part or in whole testamentary transfers. The precise language is as follows:

§ 21135 Lifetime gifts; satisfaction of at-death transfer; conditions

(a) Property given by a transferor during his or her lifetime to a person is treated as a satisfaction of an at-death transfer to that person in whole or in part only if one of the following conditions is satisfied:
(1) The instrument provides for deduction of the lifetime gift from the at-death transfer.
(2) The transferor declares in a contemporaneous writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.
(3) The transferee acknowledges in writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.
(4) The property given is the same property that is the subject of a specific gift to that person.
(b) Subject to subdivision (c), or the purpose of partial satisfaction, property given during lifetime is valued as of the time the transferee came into possession or enjoyment of the property or as of the time of death of the transferor, whichever occurs first.
(c) If the value of the gift is expressed in the contemporaneous writing of the transferor, or in an acknowledgment of the transferee made contemporaneously with the gift, that value is conclusive in the division and distribution of the estate.
(d) If the transferee fails to survive the transferor, the gift is treated as a full or partial satisfaction of the gift, as the case may be, in applying Sections 21110 and 21111 unless the transferor's contemporaneous writing provides otherwise. (Added by Stats.1994, c.806 (A.B.3686), § 41. Amended by Stats.2002, c. 138 (A.B.1784), § 36.)

To satisfy a bequest of a lifetime gift, it is critical that the lifetime gift expressly state that it is in satisfaction (or partial satisfaction) of a testamentary transfer. It is equally critical that this declaration be in writing and that the charity concurrently acknowledge that the gift is in satisfaction (or partial satisfaction) of the testamentary bequest.

Typically the gift would be for cash, but might be shares of stock that are identified in the document, or real estate. Section 21135(a) expressly states that the "property given is the same property as the subject of a specific gift to that person (or charity.)" To avoid confusion and a potential claim by a charity (or person) that a lifetime gift was not intended to satisfy the testamentary gift, it is very important that these procedures be followed to avoid legal arguments and disputes.

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Paul H. Roskoph
Paul H. Roskoph Prof. Corp.
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