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Introduction
When a donor responds to a charitable solicitation with a contribution, he or she has a right to expect that the funds will be used as promised. Solicitations should therefore indicate whether the funds they generate will be used to further the general programs and operations of the organization or to support specific programs or types of programs. A donor may also indicate through a letter, a written note on the solicitation, or a personal conversation with the solicitor or another official of the charitable organization how he or she expects the contribution to be used.
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In some cases, an organization may not receive sufficient contributions to proceed with a given
project or it may receive more donations than it needs to carry out that project. If the organization is unable or unwilling to use the contribution as stated in its appeal or in the donor’s communication, it has an obligation to contact the donor and request permission to apply the gift to another purpose or offer to return the gift. Charitable organizations should strive to make clear in materials that solicit contributions for a specific program how they will handle such circumstances,A charitable organization should carefully review the terms of any contract or grant agreement
before accepting a donation. If the organization will be unable or unwilling to comply with any of the terms requested by a donor, it should negotiate any necessary changes prior to concluding the transaction. Particularly in the case of substantial contributions, the recipient should develop an agreement that specifies any rights it may have to modify the terms of the gift if circumstances warrant. Some charitable organizations include provisions in their governing documents or board resolutions indicating that the organization retains “variance powers,” the right to modify conditions on the use of assets. Such powers should be clearly communicated to donors through a written agreement.
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Core Concepts
- Donor intent defines the present and future use of contributed funds. Organizations must respect the rights and intent of the donor.
- The charitable organization needs to agree with the conditions before accepting a donation. If the organization does not agree with the conditions, it should reject the donation.
- Donor intent should be clearly documented.
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Legal and Compliance Issues
- A written agreement with the donor is a legally binding document.
- Many states have specific laws governing the use of donor-restricted endowment funds.
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Legal Background
If a donor provides a clear, written directive about how funds are to be used at the time a charitable gift is made, the board of the recipient organization has a fiduciary obligation to comply with the donor’s directive and state attorneys general may enforce compliance. In some states, the donor (or his or her heirs) may have legal standing to ask a court to enforce those terms. This type of instruction would include a contract or grant agreement between a private or public funder and a charitable organization. An organization’s communications while it is soliciting contributions may also create a legally binding restriction that can be enforced under state and federal fraudulent solicitation prohibitions.
When carrying out a donor’s clear, written directive on how to use a contribution becomes
impossible, impracticable, or illegal, a charitable organization or the state Attorney General may
appeal to a court for authority to alter the original purposes of the gift or deviate from directions provided by the donor.1(From The Principles for Good Governance and Ethical Practice: Reference Edition,
Published in 2007)1 See Comment to § 413 of The Uniform Trust Code, promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2000, and amended in 2001, 2003 and 2005, which provides in part: “if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful ... the court may apply cy-pres to modify or terminate the trust ... in a manner consistent with the settlor’s charitable purposes.” UPMIFA, as adopted July 2006, Comment to Section 6, similarly allows a release of restrictions with donor permission, and permits deviations to modify or release a restriction, through court order or upon notification to the State Attorney General (or other applicable charity official). Modifications from the original intent of the donor must be “in accordance with the donor’s probable intention” for deviation, and “in a manner consistent with the charitable purposes expressed in the gift instrument” for cy pres. -
Discussion Points
These questions – from the Principles Workbook (PDF) – are intended to prompt discussion about the principle, assess the polices and practices of your organization, and encourage your organization to take steps to identify where improvements should be made.
- What types of problems could arise when a donor makes a contribution and specifies how the money can be used? How can these problems best be avoided?
- If we can’t utilize the funds in a manner consistent with the donor’s intent, do we have clear procedures governing when and how we return the money or try to negotiate new terms?
- Do we have a gift acceptance policy to help guide our actions?
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Resources for Principle #28
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Related Principles
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Supplemental Materials
