Lost Legacies: What Every Nonprofit Needs to Know and Do About Beneficiary Designations

Stelter’s Senior Gift Planning Consultant, Lynn M. Gaumer, J.D., CAP®, explains what your organization can do to secure donor designations and recover unclaimed property.

Tax Day is quickly approaching, prompting many donors to review their finances, especially in light of the recent stock market downturn. Periods of economic uncertainty often lead donors to pause or reduce their current giving—making it more important than ever for nonprofits to proactively manage and recover assets already designated to them.

As the Senior Gift Planning Consultant at the Stelter Company, I regularly lead training sessions on planned giving for nonprofits. During each session, I review a very common gift type—beneficiary designations—and explain how easy it is for donors to make this gift. But there is an essential step that many donors overlook: notifying the nonprofit of its beneficiary status.

Without this crucial communication, nonprofits may remain unaware of significant contributions—especially of assets like life insurance and retirement plans. This lack of communication can also lead to gifted property going unclaimed, property that may eventually escheat to the state.

Why Donor Notification Matters

When donors include a nonprofit as a beneficiary in their retirement accounts or insurance policies, they may assume that the organization will automatically be notified of (and receive) those funds upon their passing. (These funds bypass the probate process, so a court does not oversee their distribution.) In fact, the documentation used to create the account may state directly the opposite—that the financial institution has “no duty to locate or identify a beneficiary.” 

Several issues can arise if a donor fails to notify a nonprofit:

1. Lack of Awareness: Nonprofits may not know about the expected funds, which can impact financial planning and budgeting.
2. Delayed Impact: Even if the organization eventually receives the funds, the lack of foresight can delay the use of those resources for crucial programs and initiatives.
3. Unclaimed Property Risks: If a nonprofit is not notified and cannot claim the designated gift within a certain period, the funds may be classified as unclaimed property and turned over to the state.

During each training session I lead, I often check the respective state’s unclaimed property website for listings under the nonprofit name. While it’s typical to uncover one or two claims, I was recently shocked to discover that a single nonprofit had over 35 unclaimed property claims.

Unclaimed property laws vary by state, but generally, if a nonprofit does not claim a designated gift within a specific timeframe, those assets may be deemed abandoned. Once classified as unclaimed property, the state holds these funds until claimed, often requiring a time-consuming process for recovery.

Don’t Let This Happen! 3 Steps to Mitigate Risks

1. Encourage Donor Communication: Actively encourage donors to notify your organization of any beneficiary designations. This can be achieved through newsletters, during personal outreach and at donor appreciation events.
2. Provide Clear Guidance: Offer resources or direction on how donors can include your organization in their estate plans. This can be included on your website or in print, email and social media marketing content.
3. Continue to Steward: Periodically reach out to known donors to discuss their estate plans and remind them of the importance of notifying your organization of any beneficiary designations.

Next Steps: Check for Unclaimed Property in Your State

If you’re concerned that your nonprofit may have unclaimed property, here’s how to reclaim those assets:

1. Search the State Database: Begin by doing a Google search for the state’s unclaimed property database or go to missingmoney.com. Most states maintain an online platform where nonprofits can search for unclaimed assets using their organization’s name or other identifying information.
2. Gather Required Documentation: If you identify unclaimed funds, compile the necessary documentation, which may include:
   • Proof of the nonprofit’s legal status (e.g., IRS determination letter)
   • Identification and contact information for authorized representatives
3. Complete the Claim Form: Each state has a specific claim form. Ensure you fill it out completely and accurately, attaching all required documentation.
4. Submit the Claim: Follow the instructions for submission. This may involve mailing the claim form and supporting documents or submitting them online. Retain copies of everything for your records.
5. Follow Up on Your Claim: If you do not receive a response within the timeframe indicated by the state, contact the unclaimed property office to inquire about your claim status. Processing times can vary.
6. Receive and Direct the Funds: Once your claim is approved, the funds will be disbursed to your organization.

Check the Database at Least Annually: Make a note to check back at least once a year for any additional claims.

By prioritizing donor notification and actively managing unclaimed property risks, nonprofits can secure vital resources for their missions and avoid unnecessary losses. A simple conversation with a donor today could prevent a missed gift tomorrow. And a quick search of your state’s unclaimed property database might uncover funds already waiting to be claimed.

Don’t leave potential gifts on the table! Take proactive steps now to protect and maximize your nonprofit’s impact.