Leaving Money to Charity? A New Bill Stops Banks from Delaying Payouts.

What This Bill Actually Does

When people plan their estates, they often leave money to nonprofits using a payable-on-death designation on a bank account, an IRA, or a life insurance policy. It's supposed to be simple: the donor dies, and the money goes straight to the charity without going through the messy, expensive probate court process. But in the real world, big financial institutions often drag their feet. They might refuse to release the money unless the charity opens a brand-new account with them, or worse, they demand the personal Social Security numbers and driver's licenses of the charity's volunteer board members to satisfy internal corporate policies.

Senate Bill 26-118 steps in to clear this roadblock. It requires any covered entity—which includes banks, credit unions, broker-dealers, and institutional investors—to pay out those designated benefits to the charity within 60 calendar days. To trigger that clock, the charity just needs to submit a standardized affidavit that includes basic proof, like a death certificate, an IRS determination letter, a W-9, and a corporate resolution. Crucially, the bill explicitly makes it illegal for banks to hold the money hostage by forcing the charity to open an account or demanding the personal financial information of its staff or board. If federal regulations require extra compliance steps, the bank gets an extension to 120 days, but they still have to pay up.

However, the bill also anticipates what happens if a donor gives away all their cash to charity but leaves behind massive debts or a destitute spouse. Colorado law already protects surviving spouses and creditors, and this bill ensures those protections aren't bypassed. If a charity receives a payout but the donor's estate needs that money to satisfy a creditor or a surviving spouse's elective-share claim (a legal right to a portion of the estate), the charity must return the funds within 60 days of getting written notice. If the charity fights it or ignores the notice, they have to park the money in a constructive trust—a legally restricted holding status where they can't spend it—until the court sorts it out. If they fail to return the money, they'll be hit with statutory interest, legal fees, and potential court injunctions.

What It Means for You

If you are a Colorado resident who has named a favorite local animal rescue, food bank, or university as a beneficiary on your checking account or retirement plan, this bill is about ensuring your actual wishes are honored. Right now, the $10,000 you leave to a small local nonprofit might cost them months of bureaucratic headaches to collect from a national bank. SB26-118 removes that friction, meaning the money you intended to do good in your community will actually get there quickly and efficiently, rather than sitting in a massive bank's holding account while lawyers argue over paperwork.

On the flip side, this bill also protects you if you are the surviving spouse of someone who passed away. Sometimes, people fail to update their beneficiaries after a major life event, or they accidentally give away assets that the family desperately needs to pay off medical debts, mortgages, or final expenses. By clearly defining the clawback rules, this legislation guarantees that if your spouse leaves everything to a charity and leaves the estate broke, the estate's executor has a clear, enforceable path to pull that money back to satisfy family allowances and valid creditor claims.

Here is what you should do right now to make sure your legacy is secure:

• Audit your beneficiaries: Log into your bank, brokerage, and retirement accounts this week. Check your payable-on-death designations. Are the charities listed still the ones you want to support? Are the tax ID numbers correct?
• Talk to your estate planner: Ask your attorney or financial advisor if your current estate plan has enough separate cash (liquidity) to cover your final debts and family needs so your charitable gifts don't end up being legally clawed back.
• Follow the hearings: If you sit on the board of a local nonprofit and have experienced these banking delays firsthand, consider submitting written testimony to the Senate Finance Committee.

What It Means for Your Business

If you operate a covered entity—a bank, credit union, depository institution, or brokerage—your compliance and legal teams need to start rewriting your beneficiary payout workflows immediately. You can no longer rely on standard corporate policies that force institutional beneficiaries to establish an account with your institution to receive funds. More importantly, you must strictly forbid your staff from demanding Social Security numbers, driver's licenses, or personal financial data from a charity's board members or employees. You will be held to a hard 60-day deadline to disburse funds once a complete affidavit is submitted. Enforcement falls to the Division of Banking and the Division of Securities, so failing to update your procedures by August 2026 could result in regulatory action.

If you run a charitable organization or sit on a nonprofit board, this bill is a massive operational win that protects your board members' privacy. You will no longer have to risk your personal identity security just to accept a legacy gift for your organization. However, this new speed comes with serious accounting responsibilities. If an estate executor notifies you that a gift you just received is needed to pay the deceased's creditors or a surviving spouse, you cannot just say no. You must immediately isolate those funds in a constructive trust and return them within 60 days. If your nonprofit has already spent the money on operations and cannot return it, you will be on the hook for daily statutory interest and attorney fees.

Here are the concrete steps business leaders and nonprofit directors should take this week:

• Financial Compliance Audit: Bank and credit union managers should review their current "Know Your Customer" (KYC) protocols for deceased accounts to ensure they align with the bill's exemptions for charities.
• Nonprofit Treasury Protocols: Charities should draft a standardized version of the new 11-point affidavit required by the bill so it's ready to send to banks the moment you learn of a donor's passing.
• Set up an Escrow Strategy: Nonprofit executives must work with their accountants to establish a protocol for holding disputed legacy gifts in a constructive trust, ensuring those funds are never accidentally mingled with operating cash.

Follow the Money

While the official fiscal note for SB26-118 has not been published yet, this legislation is not expected to cost Colorado taxpayers any significant money. The bill primarily regulates the private transfer of funds between private financial institutions, private estates, and private charities. It does not appropriate state funds or create any new taxpayer-funded grant programs.

There may be a minor administrative impact on the state agencies responsible for enforcing these rules—the Division of Banking, the Financial Services Board, and the Division of Securities. If major financial institutions fail to comply with the new 60-day payout window or continue demanding personal information from nonprofit boards, these agencies could see a slight uptick in regulatory complaints and enforcement actions. However, this workload is almost certainly expected to be absorbed within their existing operating budgets.

Where This Bill Stands

SB26-118 was officially introduced in the Senate on February 19, 2026, by prime sponsors Senator James Coleman, Senator Cleave Simpson, and Representative Chad Clifford. It has been assigned to the Senate Finance Committee, which will be its first major hurdle.

Because the bill has bipartisan sponsorship and solves a highly specific administrative headache without asking the state for money, it has a very strong chance of advancing smoothly. It presents a common-sense fix to a bureaucratic problem that frustrates both wealthy donors and local charities. If it passes both chambers and is signed by the governor, the new rules will take effect on August 12, 2026. Keep an eye on the legislative calendar for the upcoming Senate Finance Committee hearing, as that will be the primary venue for banks or charities to suggest any technical tweaks.