Guidelines for Restricted Gifts

There are plenty of reasons nonprofits find themselves needing to change the terms of a restricted gift. It could be that the gift’s initial purpose no longer supports your mission. Or, perhaps the cost of administering the gift now outweighs its charitable benefit. Whatever the case, altering the terms of a restricted gift can be much easier if a few basics steps are taken first:

  •  Get it in writing. Avoid the legal “he-said-she-said” with a written gift agreement stating that the gift is irrevocable, detailing the expectations of the parties, and stating any specific restrictions. The document should also designate who is authorized to make changes to the gift purpose, as well as the types of changes that can be made without court or donor approval. Likewise, if the gift comes with no restrictions, be sure to expressly communicate that in the written agreement, including verbiage that the gift can be used at the nonprofit’s discretion.
  •  Educate donors. Make sure that donors understand that restricted gifts can have unintended consequences. For example, impractical restrictions could cause funds to sit idle for long periods of time if gift restrictions cannot be honored. In the worst case, funds that would otherwise be spent on charitable purposes must be spent on legal fees and court proceedings.
  •  Build in some flexibility. Encourage the use of nonbinding language in your written gift agreement. So-called “precatory” language will enable the nonprofit to apply the funds to the intended purpose, if possible. Yet it also provides the flexibility to use the funds for other charitable purposes if it is not possible to apply the funds to the originally intended purpose. Another approach is to have donors establish upfront a contingent purpose for their gifts if it’s not possible to apply the funds to the donor’s primary purpose.
  •  Review current gift agreements. Sit down with existing donors to review and revise any restricted gift agreements. You’ll find it much easier to devise solutions or alternatives with a living donor than to struggle with the donor’s heirs over restrictions.