Why your nonprofit should promote revocable living trusts over wills for legacy giving in California

Simone Kovacs
October 18, 2021
min read
Why your nonprofit should promote revocable living trusts over wills for legacy giving in California

Planned giving programs are a crucial part of most successful nonprofits’ fundraising models. As your programs and advocacy efforts grow, so do your annual expenses. So it's important to invest in fundraising tools that will sustain your organization's future.

That’s why organizations generally focus on securing charitable bequests, providing their donors with the resources to make a last will and testament and to consider leaving a gift to them in it. Gifts like these help nonprofits plan for the future, having some assurance of fundraising revenue for decades to come.

But if your organization has donors who are residents of California, a traditional will may not be the best way for them to make legacy gifts.

For many Californians, creating a revocable living trust (RLT), often accompanied by a “pour-over” will, is a better option than a traditional will, as a RLT can help protect assets from a lengthy and costly probate process. This can result in your organization ending up with more of the funds donors intend to support you and your cause.

Below, we’ll break down the key difference between a revocable living trust and a will, and show you why giving your California-based donors a simple way to make a RLT today is an act of kindness.

Revocable living trusts vs. wills in California

Both revocable living trusts and wills let people specify who they want to inherit their assets and property after they pass away. This can include nonprofit organizations. One of the most important differences between the two plans comes down to probate — the court-supervised legal process of administering an estate after the death of the will-maker.

While a will has to go through probate, RLTs allow property to avoid it.

Checklist comparing the functions of a will vs. a Revocable Living Trusta

A RLT is set up by a person called the grantor. The grantor transfers money and property to the trust (like a house or financial account), and names a trustee to manage the assets in the trust, according to the terms of the trust document. A beneficiary of the trust benefits from the assets in the trust.

Often, the grantor is also the trustee and beneficiary, and they’re able to use and access the trust’s assets while they’re alive. The grantor should also name successor trustees, to ensure a smooth transition of management of the trust funds after they become incapacitated or pass away, as well as beneficiaries to inherit upon the grantor’s death.

Many kinds of assets can fund a RLT and, therefore, avoid probate. That’s why RLTs are a particularly powerful tool in the golden state, which is known for having some of the most complex, lengthy, and expensive probate procedures in the United States.

2 reasons to promote RLTs over wills for your California supporters

There are two important reasons why California residents should have a revocable living trust, and why your organization should provide them with the resources to make one when promoting legacy giving:

1. Your donor’s heirs and your organization may save money.

In many states, probate fees are relatively modest. Attorneys may charge an hourly rate, or even a flat fee, for probate work. Executors may also be entitled to receive a small fee as a percentage of the estate or “reasonable compensation” depending on the amount of work they have to do, though executors who are family members or close friends will often elect to waive that fee altogether.

But California’s probate code has some of the highest statutory fees in the U.S.:

  • 4% of the first $100,000 of the estate
  • 3% of the next $100,000
  • 2% of the next $800,000
  • 1% of the next $9,000,000
  • 0.5% of the next $15,000,000

These fees are calculated twice — once for the attorney and once for the executor — and based on the gross value of the estate before any debts are paid.

That means that on a $500,000 estate, your donors’ heirs could lose $26,000 of their inheritance to statutory probate fees alone.

RLTs can reduce (or even eliminate) probate fees since assets that were transferred to a RLT during lifetime avoid probate. And while a RLT doesn’t have any special tax advantages over a will, the cost savings can be meaningful.

Also, because of California-specific rules, a California RLT can even protect your donors’ property from the state if it tries to take them to pay for healthcare costs. If your donor expects to need long-term healthcare facilities (which many of us do at some point), transferring assets to a revocable living trust helps ensure their passed to their loved ones.

The average size of a charitable gift in a RLT is $158K.

By encouraging your California-based supporters to make RLTs, you can help them save their family money. But it can also benefit your organization.

On FreeWill, 72% of legacy donors make charitable bequests as a percentage of their estate rather than an outright dollar figure (this is even higher with RLTs, at 77%). And the more money they have left in their estate, the more will go to your organization.

Plus, California-based legacy donors who make RLTs instead of traditional wills give larger gifts overall. For California FreeWill users, the average size of all gifts in a RLT is $158,000, compared to just $130,000 from wills.

This means revocable living trusts are a win-win for both your donor and your organization when it comes to legacy giving.

2. Your donor’s heirs will get their funds (and you’ll get your gifts), faster.

California already has one of the longest probate processes. Probate can take anywhere from eight months to several years. And it’s only gotten worse since the pandemic began, in some cases adding months of delay due to court closures, IRS slowdowns, and a backlog of cases.

This can impose hardships on loved ones who have been assured that estate assets will be available to help with expenses like funeral costs. The national median cost of a funeral in 2019 was more than $7,600 and often runs even higher, especially in a high cost of living state like California.

A person considers their future and estate plan.

Let’s look at an example: James, a California resident, lost his father several years ago, and just lost his mother now. His mom owned five accounts, titled just in her name, at the time of her death, that she’s bequeathed to him in her will.

Not wanting James to pay out of pocket, she’s also expressly provided that assets of the estate should be used for last expenses, including her funeral.

However, her bank won’t release her accounts to James until the court acknowledges him as the executor. And the court is dealing with a backlog of cases that put any review of his legal paperwork months out. So now James has to take the money out of his own individual account to ensure that his mother receives the funeral and burial she deserves.

Stories like this are not uncommon. But if you’re providing estate planning resources to your supporters that includes a revocable living trust tool for California residents, those supporters can establish a revocable living trust and help avoid this unfortunate situation. James could have been named as the successor trustee, quickly secured access to his deceased mother’s accounts, and been able to pay for the funeral with the funds intended for that purpose.

Furthermore, with probate delaying the entire process of distributing assets of the estate, that also means it will take much longer for your organization to receive a charitable bequest left to it from the estate. When a legacy donor leaves a gift in their RLT, their successor trustee can pay that gift out much faster, providing your organization with impactful funds it needs to accomplish its mission.

The kindest thing you can do for your California-based supporters

On FreeWill, only 33% of people making an estate plan in California are creating revocable living trusts instead of wills. Many just don’t know the benefits of RLTs, and think a will is sufficient.

With the ongoing uncertainty of the pandemic and possibility of new government shutdowns (including probate courts) across the country, one of the kindest things nonprofits can do for their supporters is offer them an easy way to make a revocable living trust.

This has the potential to save your organization and your donors’ heirs time and money, avoiding any delays that could back up California courts and the high fees to which attorneys and executors are entitled under California law.

FreeWill is the only provider of planned giving tools that makes it easy for nonprofits and free for donors to facilitate gifts through revocable living trusts. Request a demo of our tools today to find out how you can give back to your California-based community while raising crucial funds.