Gifts, wills, bequests and endowments

We are confused by all the terms – what do they mean?

Sometimes it is very difficult to understand the difference between the various ‘kinds’ of money or property given to your community organisation. The following section attempts to outline some the legal terms that you may come across in your day-to-day operations.

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We have been offered a gift/bequest/endowment – now what?

Sometimes the first your organisation may know about a gift, bequest or endowment is when it turns up in the mail or you are contacted by the executor of the deceased's estate (the person appointed to administer the deceased person’s money and assets in accordance with their will).

It can be of great benefit to your organisation if you attract a gift, bequest or endowment, but there are often forgotten legal obligations that go with the receipt of these donations. For example, your organisation should check if there are any potentially difficult conditions attached to the gift/bequest/endowment, and think about whether it should still accept (it doesn’t have to!).

Your organisation may want to consider whether the gift, bequest or endowment is in accordance with the organisation’s objects and purposes (or whether there is any other clause in the organisation’s rules or constitution that prevent it from accepting the gift).

Some of the issues your organisation may want to consider are listed in the sections below.

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The gift/bequest/endowment came with conditions, do we have to comply?

The short answer to this is yes, your community organisation must comply with the conditions (if any) of the gift, bequest or endowment. By accepting a bequest or the benefit of an endowment, your organisation is entering into a contract with the donor, or the estate of the donor. Failure to honour the terms of the contract could result in legal action being taken against your organisation.

Note that occasionally, a gift, bequest or endowment may come with conditions that are more onerous for your organisation than beneficial. In these situations your organisation does not have to accept it.

For example: Mr X might leave a bequest for your organisation in the form of a building (not cash). The building could be used for meetings and recreational activities. The building is worth $200,000 and requires an annual maintenance cost of $10,000. Mr X did not leave any funds to pay for the maintenance cost. The building also requires work to make it disability accessible and to ensure it meets current fire and safety standards. The bequest also provides that if the property is sold or mortgaged the proceeds will not go to the organisation. In this situation it may not be beneficial for your organisation to accept the bequest, as you may not be able to afford the $10,000 maintenance cost, and the money to make the building disability accessible and meet current fire and safety standards.  

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Do we have to accept the gift, or can we decline it?

There is no legal requirement to accept a gift, bequest or endowment.

There will be some donations to your community organisation that will come in standard form, with little room for discussion or negotiation. This will often come in the form of a small monetary donation, or perhaps second-hand goods.

However, your organisation may also be the potential recipient of large gifts, bequests or rights under an endowment fund. In these situations, it may be worthwhile sitting down with the potential donor or the executor of the donor's estate to discuss the potential donation. To the extent that you can, try and negotiate the terms of the donation (if any) in a way that fulfils the donor's wishes, but nevertheless allows your organisation to utilise the funds in areas that it is needed most.

Remember, although it is a great compliment to be offered such donations, if the conditions are contrary to your organisation's goals, or provide too heavy an administrative or long term financial burden, it may not be in your organisation's best interests to accept it (see the above example).

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We are going to change our organisational structure, will that affect gifts, bequests or endowments?

If your organisation is thinking of changing its legal structure (for example, changing from an incorporated association to a company limited by guarantee or in some other way creating a new 'legal entity'), it is important to be aware of any bequests or endowments that might be given to your community organisation. This is because, where a will names a certain organisation as beneficiary, and that organisation no longer exists (because it has amalgamated with another for example), it can be a difficult legal process for the intended beneficiary to be able to 'claim' the money.

For more information see When things change > Amalgamation.

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How does our organisation get a gift/bequest/endowment?

Sometimes people will make a gift to your organisation, or leave a bequest or endowment just because they like your organisation’s work or have a connection with your organisation. Alternatively, rather than leaving it to chance, some organisations actively ask for people to make gifts to their organisation, or leave money to the organisation in their will.

If your organisation is asking for bequests or endowments, it is useful to provide standard wording to potential donors so that your community organisation can be assured that any bequests or endowments left by the donor will be legitimate in law. It may also be useful for your organisation to provide the wording for the bequest or endowment so that it can direct the way that funds can be used (that is, avoid difficult or impractical conditions).

The following is a sample of the kind of wording that may be suitable for potential bequests by donors:

"I bequeath [the whole/a percentage/something specific/residue] of my estate to [X organisation or successor organisation] of [the registered address of your community organisation] for purposes that it shall determine, and this bequest will be free from all duties. The receipt of this bequest by any authorised officer of [X organisation or successor organisation] shall form valid discharge to my executor."

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Can a bequest to our organisation be challenged?

Yes. Part 4 of the Administration and Probate Act 1958 (Vic) provides for a person to challenge a will if they believe that the deceased person had a responsibility to provide for them, but did not make adequate provision in the will. These are called ‘family provision claims'. The Supreme Court has discretion in determining whether or not a person has been adequately provided for in the will of the deceased.

Often such claims work to the detriment of charities that are the intended recipients of gifts in a will. If a family member makes a claim that they have not been adequately provided for, a charity may have very little competing moral claim to the bequest because, as the law generally presumes, ‘family comes first.'

There are steps your organisation can take to prevent (or minimise) a family provision claim. While the donor is still alive, you should:

• Encourage gift giving in order to establish a proven link between the donor and the charity, as well as the donor's intention.  Keep records of all such gifts and of the relationship between the donor and your community organisation; 
• Encourage the donor to seek independent legal advice to avoid accusations of undue influence. This is critical where the donor is near death, elderly or physically or mentally incapacitated.
• Encourage the donor to make adequate provision in the donor's will for all persons who would be entitled to make a family provision claim.

For more information on family provision claims, see the Related links - bequests at the end of this page

Do we need to have deductible gift recipient (DGR) tax status to accept gifts?

No, your organisation can accept gifts without having DGR status. However, even if your organisation is endorsed as a DGR, a gift given by bequest is not tax deductible by the donor's estate. A gift or donation made to an organisation with DGR status will only be tax deductible if the donation is made during the donor's lifetime.

For information about obtaining DGR tax status, see Getting Started > Tax Issues > DGR.

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How are gifts, wills or endowments treated for tax purposes?

Your organisation should seek specific advice on its income tax and GST obligations.  

Income tax

Generally speaking, unless your community organisation is income tax exempt, you will be taxed on any income you receive as the result of a gift, bequest or endowment. 

To find out more about income tax, and whether your organisation might be eligible for a concession, see Getting Started > Tax Issues > Income tax.

GST

If your organisation receives a gift (defined by the Australian Tax Office to be a voluntary payment whether the payer receives no 'material benefit') then the gift is not subject to GST. The value of a gift is also excluded when calculating the organisation’s annual turnover for the purposes of establishing whether it is required to be registered for GST.

Your organisation should note that the ATO considers that a payment is not 'voluntary' when there is an obligation to make the payment, or the not-for-profit organisation is contractually obliged to use the payment in a specific way. There are also special rules about what constitutes a material benefit. For further information see the ATO resources in the Related Resources section below and our Getting Started > Tax Issues > GST page.

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Resources

Legislation

Australian Tax Office (ATO) resources

Bequests

Grants and philanthropy information

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