United States: Wrapping Up A Gift Acceptance Policy

When you receive a gift from a donor, do you always jump for joy and quickly send a thank-you note from your organization? If you do, that may be a mistake, because all gifts are not created equal. Having a gift acceptance policy to refer to and using it to decide if you should accept a donation is important to your organization's financial position as well as to its reputation.

Finding a Perfect Fit

A strong gift acceptance policy describes what kinds of gifts are acceptable and how they will be managed by your organization. It also should state your organization's mission, the policy's purpose, and the types of gifts that should be reviewed by an attorney before they are accepted. It should also include the role of your organization's gift acceptance committee, if you have one, and the steps involved in an annual review of the gift acceptance policy.

Tailor your policy to fit your organization's size and characteristics and involve both your staff and your board in the development process.

Judging What You Can Handle

When forming your gift acceptance policy, start with a self-assessment. Your organization must determine its ability to manage each type and form of gift. For example, it may not want to accept gifts of real estate if it is not staffed to manage the property or is not willing to act as the landlord.

Another example:  Tangible personal property, such as furniture or collections, may need insurance, special display cases or off-site storage. This could require your organization to incur substantial out-of-pocket costs for years to come. Ask yourself if your organization has the resources to manage such gifts — and whether it wants to do so.

All policies should state that gifts that conflict with the organization's mission should be rejected. The policy also should address how gifts will be managed and invested (if applicable) and how the organization will dispose of them.

Pay special attention to any restrictions that donors place on gifts. Almost all organizations prefer unrestricted gifts so that the organization can use the funds for any business purpose as determined by management and/or the board.

Understanding What is What

Gifts typically fall into two categories. With current gifts, your organization receives property or money from a donor, and the donor receives no financial benefit other than a tax deduction. There may be restrictions on how the gift can be used, but your organization, not the donor, has control.

In the case of split interest gifts, the donor transfers an asset (or an interest in an asset) to your organization but draws income from the gift or receives a remainder interest at some point in the future. Or the donor can name another beneficiary to receive the income or remainder interest. Common forms of split interest gifts are charitable gift annuities, charitable remainder trusts and charitable lead trusts.

Investment responsibilities and obligations to the donor or the donor's family come with a split interest gift and the rules can be technical, so make sure your organization has the resources to monitor these types of gifts properly.

Considering all the Angles

Some gifts may incur extra expense, such as a special cabinet to display a rare coin collection or an insurance policy to protect its value. Here are examples of other types of gifts requiring special attention:

Investment Securities — While publicly traded securities are easy to convert to cash, closely held stock may be hard to value and sell. Your organization will need different policies for each type of security.

For example, because donors of publicly traded stock often have the expectation that the organization will hold onto the stock, gift acceptance policies typically state that donated investments are to be sold on receipt. That way the donor will not be unpleasantly surprised if you sell the stock. This also ensures flexibility for the organization in managing its investment portfolio.

Gifts of closely held stock, on the other hand, require scrutiny before acceptance because of the valuation, liquidity and other complex issues that affect such stock. Your gift acceptance policy should outline the steps your organization must take before accepting closely held stock.

Real Estate — Many steps precede accepting a gift of real estate, including getting a recent appraisal from the donor and a disclosure of any property liens or other encumbrances. Also, your organization may likely need to contract a hazardous waste audit on the property.

Intangible Property – There are different types of intangible personal property that may be donated to a charity, such as life insurance policies, intellectual property and royalties. Your gift acceptance policy should describe how these gifts will be valued and administered.

Saying "No" to a Gift

While it might be human nature to accept gifts graciously, sometimes it is more appropriate to turn a gift down, whether for issues of condition, space limitations or unsuitability to your organization's mission.

A gift acceptance policy provides an objective way to decline a gift but still maintain a good relationship with the donor. A representative of your organization can explain to the donor that previously set policy does not allow your organization to accept the gift— in other words, "it is nothing personal."

Moreover, a gift acceptance policy contributes to good governance because it disciplines your organization to weigh the advantages and disadvantages of accepting and administering a gift. Also, IRS Form 990 asks not-for-profit organizations receiving more than $25,000 in noncash contributions whether they have a gift acceptance policy. Although a policy is not legally required, having one helps show that the organization exhibits good governance and accountability.

Getting an Outside Opinion

Before you recommend a policy for your board to approve, we recommend you have the gift acceptance policy reviewed by your CPA firm and your legal counsel. After your policy is in place, it should be reviewed at least annually. Resources could change and your experiences might dictate a revision.

I am not known for my holiday season gift wrapping skills, but I can help you with "wrapping up" your organization's gift acceptance policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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