Nonprofit Accounting for Bequests: Rules, Journal Entries, and Examples

Most nonprofit teams we talk to ask the same question about bequests: “A donor told us we’re in their will. Do we record it now?”

In most cases, the answer is no. Recording a bequest too early is one of the biggest mistakes nonprofits make. Nonprofit accounting for bequests follows specific timing rules. If you record a bequest before the right time, you could overstate your revenue and your board could make decisions based on wrong numbers.

This guide explains what a bequest is, when to record it, the exact journal entries to use, how restrictions work, and how bequests show up on your Form 990. 

What Does Bequest Mean?

A bequest is a gift that someone leaves to a person or organization through a will or living trust. When the gift goes to a charity, it’s called a charitable bequest.

The donor still owns and controls their assets during their lifetime. They can change or cancel the bequest at any time by updating their will. The nonprofit only receives the gift after the donor passes away and the estate is settled.

This is why the accounting rules work the way they do. Since the donor can change their mind, the gift usually isn’t recorded right away.

Types of Bequests Nonprofits Receive

Bequests to charities come in one of four forms:

A charitable bequest usually includes the nonprofit’s legal name, address, and EIN. 

A simple example is:

“I leave $10,000 to [Organization Name], a nonprofit organization located at [Address], EIN #XX-XXXXXXX, for its general purposes.” 

The legal wording should always be prepared by an attorney. This guide focuses only on the accounting side.

Gift vs Bequest: What’s the Difference?

A gift (or donation) is made when the donor is still alive, so the nonprofit can use it as soon as it’s received.

A bequest, on the other hand, is left through a will and is received only after the donor’s death and the estate is settled. 

Although both are donations, the accounting is different. A lifetime gift is usually recorded when it’s received or unconditionally promised. A bequest is recorded later, once the nonprofit has an unconditional right to receive it.

When Do You Record a Bequest? (The Revenue Recognition Rules)

Under US GAAP, nonprofits record contributions when they become unconditional. The rules are based on FASB’s not-for-profit standards (ASC 958). For bequests, there are three stages:

Stage 1: The donor tells you they’ve named you in their will:

Don’t record anything yet. A will is revocable, and the donor can remove your organization at any time. This is called a bequest intention, and an intention is not an asset. You can keep a record of it in your donor database for stewardship, but it shouldn’t appear in your accounting records. 

Stage 2: The donor passes away, and the will enters probate:

In most cases, you should still wait. The bequest is conditional until the probate court declares the will valid and your right to the gift becomes irrevocable. 

If family members challenge the will, or the estate’s debts are unsettled, the amount isn’t measurable yet. 

Stage 3: Your right to the gift is irrevocable, and the amount can be reasonably estimated:

Now you record it. This is usually when probate confirms the will and the executor communicates what your organization will receive. At this point, you record contribution revenue and a bequest receivable, even though the cash may take months more to arrive.

We often see new nonprofit clients make one of two mistakes. Some record a donor’s intention as revenue long before they should. Others wait until the cash arrives and never record the receivable. Both approaches can make the financial statements inaccurate. 

Journal Entries for Bequests (With an Example)

Let’s look at a simple example.

Suppose a longtime supporter passes away in March. Her will leaves your organization a $50,000 specific bequest. In June, the probate court validates the will and the executor confirms the amount. The check arrives in September.

March (donor passes away): 

No journal entry is needed. At this stage, the gift isn’t yet irrevocable, and the amount hasn’t been confirmed. 

June (probate completed and amount confirmed):

September (cash received): 

Notice that the revenue is recorded in June, not September. That’s how accrual accounting works. You record the income when your nonprofit has the right to receive it, even if the cash comes later. If your organization follows GAAP, it uses the accrual method. We explain this in more detail in our guide on accrual vs cash accounting.

If the estate is complicated and you can only estimate a range, record the amount you can reasonably support, and once the final amount is confirmed, update your records if needed. Be sure to keep documentation showing how you arrived at the estimate, as your auditor will ask for it.

Restricted vs Unrestricted Bequests

Once you know when to record a bequest, the next question is where it goes on the statement of activities.

Under current GAAP, nonprofits report two types of net assets:

• Net assets without donor restrictions: The donor left the bequest for general use, and your board decides how to use it.
• Net assets with donor restrictions: The donor specified a purpose (“for the scholarship fund”) or a time frame or made it a permanent endowment. 

The wording in the will determines the classification, not your board’s preference. For example, if the donor says the money must support a scholarship fund, the bequest is recorded as revenue with donor restrictions. It stays in that category until the funds are used for the stated purpose.

This is where bookkeeping structure matters. Restricted bequests should be tracked separately. A proper chart of accounts setup with classes or funds keeps restricted money separate from day-to-day operations. Mixing the two makes it hard to prove that the money was spent as the donor directed. The National Council of Nonprofits is a good resource on managing restricted funds responsibly.

Accounting for Non-Cash Bequests

Not every bequest is cash. Some donors leave stocks, real estate, vehicles, and personal property.

The rule is to record non-cash bequests at fair value on the date you recognize the gift.

• Publicly traded stock: Use the market price on the recognition date.
• Real estate: Get an independent appraisal. Don’t rely on the county tax value.
• Personal property (art, collections, vehicles): Obtain an appraisal for valuable items.

If your organization later sells the asset for more or less than its recorded value, the difference is recorded as a gain or loss. It doesn’t change the original contribution amount. Also, decide early if you’ll even accept certain assets. 

A property with a lien or environmental issue can cost more than it gives, so it’s also a good idea to get financial advisory services and have a gift acceptance policy that protects you.

Accounting for Donations to Nonprofit Organizations vs Bequests

Regular donations and bequests follow the same basic accounting principle, which is to record contributions when they become unconditional. The difference is in the timing. 

• A cash donation is easy. When you receive the money, you record the revenue. 
• An unconditional pledge from a living donor is recorded when the promise is made, with a pledge receivable. 
• In-kind donations of goods or services are recorded at fair value when they are received. 

A bequest is different. The donor’s promise stays in a revocable will, sometimes for many years, and none of it is recordable until death, probate, and measurability line up. 

That’s why a nonprofit may have many bequest intentions in its donor records but no bequest revenue in its accounting records. That follows the accounting rules.

How Bequests Appear on the Form 990 and Financial Statements 

On your financial statements, bequests are reported as contribution revenue on the statement of activities. They are classified as either with donor restrictions or without donor restrictions, depending on the donor’s instructions. 

On Form 990, bequests are reported as contributions. Large gifts are reported on Schedule B (contributor detail), and qualifying non-cash bequests are reported on Schedule M. 

One more question we hear a lot is, “Are bequests taxable to the nonprofit?” In most cases, no. A 501(c)(3) organization doesn’t pay income tax on contributions, including bequests. On the estate’s side, charitable bequests are deductible for estate tax purposes, which is one reason donors’ attorneys often suggest them. 

This is general information, not personalized tax advice. Talk to a licensed CPA or tax professional about your organization’s specific situation.

Common Mistakes We See in Bequest Accounting

In my more than 6 years of bookkeeping work, these are the most common bequest accounting mistakes I correct:

Any of these mistakes can overstate or understate revenue. When the financial statements are wrong, boards approve budgets and spending plans based on inaccurate information.

Get Your Bequest Accounting Right From the Start

A bequest is often the single largest gift a nonprofit ever receives. Recording it too early can make your organization look stronger than it really is. By missing donor restrictions, you can spend funds the donor legally directed elsewhere. 

If your nonprofit has an upcoming bequest or you’re unsure if past bequests were recorded properly, we’re here to help. We handle nonprofit bookkeeping services and contribution accounting every day, from setting up restricted fund tracking to cleaning up accounting records before an audit. 

Book a free consultation, and we’ll review your bequest accounting, identify any issues, and help you build a system that’s accurate, organized, and audit-ready.

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