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

The Bottom Line

If you leave money to a charity when you pass away, financial institutions sometimes drag their feet or demand unnecessary paperwork to release the funds. This new law forces banks and brokerages to hand over the cash within 60 days, while protecting nonprofits from having to hand over their board members' personal Social Security numbers just to collect a donation.

What This Bill Actually Does

When someone dies and leaves their IRA, bank account, or life insurance to a nonprofit via a payable-on-death (POD) designation, you'd think transferring the money would be easy. In reality, banks, brokerages, and credit unions (referred to in the bill as covered entities) often throw up administrative roadblocks. They might demand the nonprofit open an account with them before releasing the funds, or aggressively ask for the personal Social Security numbers and driver's licenses of the charity's board members. This bill strips away those hurdles, creating a standardized, 60-day shot clock for financial institutions to release the funds.

Here is how the new system works: The charitable organization simply submits a standardized affidavit to the financial institution. This document includes basic proof—like a death certificate, the charity's IRS determination letter, a W-9, and a corporate resolution proving the person signing is authorized. Once the bank receives this packet, they have exactly 60 calendar days to pay out the designated benefits. If strict federal regulations require extra compliance steps, the bank gets a maximum of 120 days. Most importantly, the law explicitly bans banks from forcing the charity to open an account or hand over employees' personal identification just to process the transfer.

But it's not just a free-for-all; the bill also protects a deceased person's surviving family and creditors. If a donor's estate doesn't have enough cash to cover legitimate debts, spousal allowances, or legal claims, the charity might have to give some of the money back. Upon getting a written notice from the estate's personal representative, the charity must hold the disputed amount in a constructive trust. If the charity ultimately owes the estate and fails to return the funds within 60 days, they will be hit with statutory interest charges and potential court injunctions.

What It Means for You

If you are currently doing estate planning, setting up a living trust, or deciding who gets your 401(k) when you pass, this legislation gives you much more certainty. When you name a food bank, a local church, or an animal rescue as the beneficiary on a savings account or retirement plan, you want that money to go straight to their mission—not get chewed up in months of legal wrangling between your favorite charity and a stubborn bank. Starting August 12, 2026 (the bill's effective date), your designated nonprofits will have a clean, legally protected path to access those funds quickly and without hassle.

However, this also serves as a crucial reminder to keep your overall estate balanced. Because of the clawback provisions in this bill, you can't just leave all your cash to a charity and leave your spouse or your creditors high and dry. If your estate doesn't have enough liquid assets to cover outstanding bills or statutory spousal allowances, the personal representative of your estate can legally force the charity to return those designated benefits. If you're leaving a massive chunk of your net worth to a nonprofit, it's wise to review your overall asset mix to ensure your family and final expenses are fully covered first, so the charity doesn't have to deal with a messy return process.

Finally, for Coloradans who sit on the board of a local nonprofit or work for one, this is a massive sigh of relief. It used to be relatively common for big financial brokerages to demand the personal Social Security numbers of nonprofit employees just to process a donor's final gift. Under this new framework, your personal financial privacy is explicitly protected. You'll simply need to ensure your organization has its corporate resolutions and IRS paperwork in order so you can legally sign the required affidavit and get the 60-day payment clock ticking.

What It Means for Your Business

If you run or manage operations for a covered entity—which the state defines broadly to include banks, broker-dealers, depository institutions, credit unions, and institutional investors—this bill requires an immediate update to your compliance and payout protocols before late summer 2026. You can no longer default to a standard corporate policy of requiring beneficiaries to open an in-house account before transferring funds. You also need to train your frontline trust and estate officers to recognize the new standardized affidavit and initiate the 60-day payment window immediately upon receipt, without demanding personal identifying information from the charity's representatives.

There is a small compliance cushion built into the law for complex situations. If federal banking regulations (like strict anti-money laundering or Know Your Customer rules) require you to take additional verification steps before releasing the funds, the payment deadline extends to 120 days. However, your legal and compliance teams should be explicitly documenting why that federal extension is necessary for a specific transaction. The state's Division of Banking, Division of Financial Services, and Division of Securities have full authority to enforce these timelines and penalize institutions that drag their feet unnecessarily.

For estate planning attorneys, CPAs, and wealth advisors, this legislation standardizes the advice you give to philanthropically minded clients and the nonprofits themselves. You should update your checklists for nonprofit clients to include drafting the required corporate resolutions and gathering their IRS W-9s ahead of time, ensuring they are ready to file the affidavit the moment a donor passes. Furthermore, when advising high-net-worth individuals, you'll need to stress-test their estates for potential elective-share claims from surviving spouses. You want to ensure that any legacy gifts don't inadvertently trigger a clawback scenario that creates an administrative headache for the very charities they are trying to support.

Follow the Money

This is a rare piece of legislation that essentially costs the taxpayer nothing. According to the nonpartisan fiscal note, the bill requires $0 in state revenue and $0 in state expenditures. The regulatory bodies responsible for making sure banks comply—primarily the Department of Regulatory Agencies (DORA) and its various divisions—will absorb any minor enforcement actions into their existing budgets and workload.

At the local level, trial courts aren't expecting a wave of new expenses either. Any legal battles between charities, banks, and disgruntled heirs will simply be handled within the existing probate court system. Ultimately, the financial impact is entirely private: shifting money out of the holding accounts of financial institutions and putting it directly into the hands of Colorado charities faster.

Where This Bill Stands

SB26-118 is currently Signed Into Law. The latest official action came on 04/17/2026: Governor Signed.

That means the legislative process is complete and the bill is now law. The remaining questions are about implementation timing and how agencies, businesses, or local governments respond.