The hidden donation roadblock
For many, leaving an IRA or retirement account to a charity is the ultimate way to leave a legacy. It helps the nonprofit and gives the donor a tax break. But lately, it’s become a nightmare to actually collect those funds.
According to nonprofit leaders and lawyers, some banks and brokerages are creating excessive red tape. Instead of simply transferring the funds, some financial firms are demanding that charities open new accounts with them. In the process, they often ask for sensitive personal details like Social Security numbers or home addresses of employees and board members—often without even disclosing how much money is in the account.
Why it takes years to get the cash
This "hoop-jumping" can stall the process for months or even years. Rob Hilbert, president of the Iowa PBS Foundation, noted that his team once spent over five years sending paperwork back and forth just to secure a $6,000 donation. In another instance, Jon Kraus, executive director of gift planning at the University of Denver, said a $2 million gift sat stagnant at a financial firm for two years while the institution demanded personal info from his staff.
"That $2 million at 4.5% would have spun off $90,000 a year that we could have been awarding in student scholarships," Kraus explained. Because of the frustration, some charities are forced to walk away from the gifts entirely. While some firms are easier to deal with, the lack of a standardized process is creating a major headache for philanthropic groups nationwide.
Why it matters
With trillions of dollars expected to be donated through estates by 2048, experts are pushing for state laws that force financial firms to release these funds without invasive requirements. So far, six states have passed such bills, and more are on the way to ensure that donors' final wishes actually reach the missions they intended to support.
