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Federer’s Wimbledon Win Pays Off For Some In Britain

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While many across Britain were devastated last week by Roger Federer’s victory at Wimbledon over hometown darling Andy Murray, others had something to celebrate: money for charity.

In 2003, Nick Newlife (no, I’m not making up his name) placed a £1,520 bet that Roger Federer would win the Wimbledon crown seven times by the year 2019. Not coincidentally, 2003 marked the year that Federer won his first Grand Slam singles title at Wimbledon, beating Australian tennis player Mark Philippoussis. With only one win under his belt, Federer’s odds of collecting seven wins weren’t remarkable: a mere 66-1. That feat had only occurred one other time in the Open Era at Wimbledon when American Pete Sampras landed his seventh win in 2000.

Newlife’s prediction turned out to be a good one. The bet cashed in at £101,840 GBP (worth, as of this morning, $157,284.96 US) and is all payable to Oxfam International. Oxfam International, or Oxfam as it’s called, was formed in 1995 to reduce poverty and injustice around the world. The name “Oxfam” is taken from the old Oxford Committee for Famine Relief which was founded in Britain in 1942 to provide food supplies for starving women and children during the Second World War. The organization is now global with member organization in Australia, Belgium, Canada, France, Germany, Great Britain, Hong Kong, Ireland, India, Italy, Japan, Mexico, The Netherlands, New Zealand, Quebec, Spain and the United States.

Newlife didn’t live to see his gamble pay off: he actually died in 2009. He apparently had no surviving family and friends – being characterized as a bit of a recluse – and left his entire estate to Oxfam. That estate included his wager on Federer.

While the circumstances might be a bit unusual in this case, contingent or conditional bequests aren’t as uncommon as you might think. In fact, controlling your finances from “beyond the grave” is an important part of estate planning: determining who gets what and when and how should be spelled out carefully.

That said, you do have to be careful: while it’s your money to do with as you’d like, the law generally won’t allow you to make bequests to charities which are considered against public policy. Consider the case of Stephen Girard who, when he lived in my own Philadelphia in 1776, was considered the richest American of his time. Like Newlife, Girard died without any family to survive him; he had been married but his wife predeceased him and he had no children. He left the bulk of his $7.5 million fortune to the City of Philadelphia to build a school to educate “poor, white, male orphans” – it was, at the time, the largest charitable gift ever made in America. That school became Girard College. There was just one giant problem with Girard’s plan: it was discriminatory. Eventually, the matter went to court and the school now admits boys and girls of all races.

When it comes to planning, drafting is key, and that includes sorting through all of the possible outcomes of a bequest. That can be tough, depending on the circumstances. Christian Kelso, an estates and tax attorney who is Of Counsel at the Dallas-based law firm Malouf Lynch Jackson & Swinson agrees. In his practice, he says that unusual contingencies and conditional gifts generate “a fair amount of buzz in the office.” Depending on the circumstances, he says that his office tries to steer clients away from making bequests that are too out of the ordinary or those that might open the door to problems or litigation. He stressed that if the clients do want to include a contingent or conditional bequest, his office works to ensure that bequests are structured properly such as, for example, confirming that the client’s intention is to have a successor charity be entitled to a bequest; charities that change names or merge with other charities might not receive a bequest if the will isn’t drafted properly. It is, he concedes, more work during lifetime to focus on drafting but it avoids expensive probate challenges after death and, more importantly, ensures that exactly what the decedent intended to happen actually happens.

From a tax perspective, a contingent or conditional bequest can tricky if a charitable component drives the tax benefit. In the most simple terms, the deductibility of a charitable contribution at the death of a decedent hinges upon whether you can ascertain the amount, if any, that charity will actually receive.

In the case of Newlife, for example, if this had happened in the United States, his estate would not have been entitled to an immediate charitable deduction since the bequest was contingent on factors that might not have ever happened (though I realize that tennis fans like
Madeline Martin in my office are shaking their heads at this point, saying that, of course, Federer would win 7 Wimbledon titles…). Here’s a quick rundown of some potential federal estate tax consequences of different bequests (assuming, of course, that the charity is a qualifying charitable organization and the bequest is otherwise proper):

  • An outright charitable bequest at death (for example, “I give $100,000 to the American Red Cross”) results in an immediate charitable deduction for federal estate tax purposes.
  • An irrevocable charitable bequest in trust created at death tied to a specific event or time (for example, “I give $100,000 in trust with the income payable to my daughter for 10 years and the remainder payable in full to the American Red Cross after 10 years”) results in an immediate charitable deduction for federal estate tax purposes based on the actuarial value of the gift – in other words, the value today of the right to receive $100,000 in 10 years (this is sometimes referred to as the present value of a future interest).
  • A contingent or conditional bequest based upon an event happening at or before the death of the decedent (for example, “If my daughter is not living, I give $100,000 to the American Red Cross”) results in an immediate charitable deduction for federal estate tax purposes only if the gift actually goes to charity. In my example, if the daughter were still living at the death of the decedent, the charity wouldn’t get the money and thus, there’s no charitable deduction. A bequest that will never be paid is simply not deductible.
  • An executory bequest based upon an event occurring only after a specific bequest (for example “If my daughter gets married to a sailor before she turns 25, then the American Red Cross will receive $100,000”) results in an immediate charitable deduction for federal estate tax purposes only if there’s a definite possibility that the event will happen. The IRS takes the position that if a bequest is dependent upon the fulfillment of a condition, no deduction is allowed unless the possibility that the charity will not receive the bequest is so remote as to be negligible. So if the daughter is not alive, already married, over the age of 25, really hates sailors or is staunchly opposed to the idea of marriage, there’s no deduction. If she were engaged to a sailor at the age of 24, you could make the argument that the charity is more likely than not to receive the bequest. If the answer is somewhere in the middle, there’s likely no deduction.

As you can imagine, this area of estates and tax law can be tricky. Keep in mind that these matters can be very facts and circumstances dependent and tax laws change all of the time so don’t rely on this post as the basis for your estate plan. I like to think I’m fairly clever but I can’t make any kind of firm recommendations about your plan without meeting with you – and if I had the ability to see and know the future, I’d totally be buying some betting wagers of my own.

If you intend to leave a bequest to charity (or a non-charity, for that matter) with any strings at all, I highly recommend that you consult with an estate planning attorney with experience in putting together sophisticated documents. If you’re paying for a particular result, you want to get it right – though even the best estate planning and tax attorney can’t promise that your daughter will actually marry a sailor.

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