Sometime in your career you’ll likely be approached by a donor who wants to give you a gift you probably shouldn’t accept.
It may be due to the fact it comes with strings. Or liabilities. Or expenses. Or you’re just not staffed up to do the work required to comply with all legal requirements associated with accepting this type of gift.
You’d think it wouldn’t be hard to accept a gift. Just say ‘yes,’ right?
Some gifts are a bit riskier than others.
- Closely held or otherwise restricted stock
- Real estate
- Business interests (e.g., partial interest in apartment complex or start-up company)
- Personal property (e.g., yachts; animals; stamp/coin collections)
- Unsaleable asset (e.g., no current discernable market)
- Gifts that run counter to your values (e.g., tobacco stock for American Lung Association; soda stock for American Diabetes Association)
Some donors are a bit trickier than others.
- Want you to hold on to and manage the asset (e.g., stock; real or personal property; art)
- Want to be investment manager for the asset
- Want to retain a partial interest
- Want to give a gift that offers significant donor benefit but minimal charitable benefit
- Want to restrict use of the gift in a manner with which you’re not comfortable
Sometimes it’s just not prudent to say ‘yes.’
When problematic situations arise you want to assure you know what to do, and that you’re consistent in what you accept/don’t accept.
That’s where Nonprofit Gift Acceptance Policies come in.
The Purpose of Nonprofit Gift Acceptance Policies
The point of creating nonprofit gift acceptance policies, and putting them in writing, is to:
- Offer guidelines to staff and board
- Avoid unnecessary risk, expense and liability
- Maintain discipline in gift acceptance and administration
- Respectfully manage donor expectations
- Comply with IRS regulations (IRS Form 990 asks whether you have a ‘gift acceptance policy.’ In order to say ‘yes’ you must complete Schedule M when reporting non-standard gifts.)
Those on the front lines asking for and/or receiving gifts deserve advance notice of what your nonprofit is willing to accept/not willing to accept. Forewarned is forearmed. Otherwise they may get themselves into sticky situations where they solicit a gift your nonprofit is unwilling to accept. Even worse, they might accept a gift that could get your organization into legal trouble. Or cost you a pot of money. Or skate around the edges of ethical practice.
Maintaining gift acceptance policies is good governance, because developing them requires you to grapple with advantages and disadvantages of different scenarios.
Nonprofit gift acceptance policies and procedures mitigate against nightmare scenarios.
For example, at one nonprofit where I served as development director, I received a call from a donor wanting to give us a piece of property that had once been home to a gas station. Our board had previously approved guidelines prohibiting acceptance of just such properties because many are toxic sites and, therefore, relatively unmarketable. In fact, this donor was looking to unload the property because they couldn’t sell it and didn’t want to pay to clean up the hazardous waste. They’d get a tax deduction; we’d get a big fat mess. I was able to thank them for thinking of us, express my regrets, and let the prospective donor know our gift acceptance policy would not permit us to accept their donation.
Another time I was asked to accept the gift of a yacht that was docked on the east coast. We were on the west coast. He also had scoped out the market and knew of a potential west coast buyer. He told us the yacht’s value based on what he knew from sales of similar boats. All we’d have to do was transport the yacht across the country, dock it until the buyer was ready, and then sell it. We’d retain the profit. While that may sound okay on the face of it, I knew enough about what can go wrong with boat donations that I’d previously recommended to our board we not accept such gifts. I’m sure you can already see the potential expenses piling up (insurance, transport, storage, maintenance, etc.). And who knew what the yacht was really worth? And if the sale was pre-arranged and already a ‘done deal,’ would it really be a donation? We simply didn’t have staff in place to review every potential gift to see if we’d come out ahead. I also knew from experience one of the main reasons folk who live outside an organization’s geographic area seek to make donations of real or personal property to a ‘stranger nonprofit’ is they’re unable to sell the property themselves. They troll around seeking some poor sucker willing to take on the hassle and burden so they can get rid of their headache and at least get a deduction where they can’t get a sale.
Another time I was asked to accept a piece of undeveloped property. The donor told me what he’d paid and what he anticipated the fair market value would be. Our gift acceptance policy mandated we first conduct a property value market assessment and environmental impact report. I was able to let the donor know we might be able to accept their property, contingent on these reviews. When I found out what our sales price might reasonably be expected to be, and got a clean bill of health, I called the donor back and let him know. He was content with this amount as a donation, even though he’d believed the property was worth more. In this way we avoided any surprises and assured the donor would be satisfied with the transaction.
Your Road Map for Gift Acceptance
Nonprofit gift acceptance policies set forth the what, who, when, how and where for receiving different types of gifts. Typically they’ll include:
- Gifts consistent with organizational values
- Types of acceptable gifts (e.g., real property; personal property; securities; cash; in-kind services)
- Forms of acceptable gifts (e.g., current; deferred; split-interest gifts; bargain sales; restricted stock, etc.)
- Types of donors (e.g., individuals; partnerships; corporations; foundations; donor advised funds; government agencies)
- Persons authorized to make gift acceptance decisions
- Subject to review (e.g. gifts which may pose special liabilities)
- Timeframe for holding on to or selling different types of gifts
- By review of specified internal officers (e.g., CEO; Director of Development; CFO; legal and/or real estate department)
- By review of specified committees (e.g., Development; Finance)
- By review of specified external professionals (e.g., attorney; real estate professional; appraiser)
- Reporting requirements (by the charity and the donor)
Nonprofit gift acceptance policies provide an objective way to decline a gift but still maintain a good relationship with the donor. You can even send your written policy to the contributor to reassure them the rejection of the gift is nothing personal; it’s merely the result of policies set in place.
Your gift acceptance ‘road map’ is a guideline only, and should allow for rare exceptions to be made as appropriate. Your policies should delineate the review process; any deviation from your standards should require written, well-reasoned approval from specific people (e.g. CEO; Executive Committee; Planned Giving or Development Committee).
What Should Your Nonprofit Do Next?
1. Draft a Gift Acceptance Policy
You don’t need to reinvent the wheel. You can find a sample gift acceptance policy from the Council on Nonprofits here. You can also find a sample from Kathryn Miree, one I’ve used at more than one nonprofit. Don’t take a complete cookie cutter approach to adopting your policies, however. These samples are just your starting point.
The policy you develop should be tailored to reflect your organization’s mission, size, particular characteristics and resources. Involve all key players, including board, management, development staff, finance personnel, and program administrative staff. Begin with a self-assessment as to what your organization can reasonably handle. For example, were you to accept a chess collection (this happened to me when one of our donors turned out to be a former famous chess champion, and was looking for a place to permanently house his collection), would you be able to handle out-of-pocket and potentially ongoing expenses such as appraisal, insurance, storage, and display? Think about the expertise you may need, and determine whether you can realistically find and engage such resources (e.g., appraisers; environmental analysts; property brokers, and legal and financial advisors).
Incorporate guidelines for all types, forms and purposes of gifts. As pertinent, include language about charitable bequests, specific endowments, naming opportunities, and any dollar limits and pledge restrictions. If you’ll accept trusts, indicate whether your organization is willing to serve as trustee. If you’ll accept restricted gifts, indicate the restrictions you’ll accept/won’t accept. Be sure to clearly state that gifts beyond, or counter to, your scope will be declined. These things are likely to change over time, so be sure to review your policies on an annual basis.
Delineate important specifics. If there are types of property you’re willing to accept, but only pending review, include a checklist in your policies to serve as your guideline. For example, you might require environmental inspections, market appraisals, site visits, title searches and/or legal review. You might also delineate the geographic area from which you’re willing to accept real property, or the floor for appraised value. If the donation is art, would you be able to hold and display the art for at least three years, or would you need to sell immediately? (This would affect your donor’s tax deduction, so it’s good to have this in your policies). If your policy is too general (e.g., “review gifts prior to acceptance”) it won’t be useful to anyone moving forward.
2. Have a qualified legal representative review your policy draft
Get independent counsel from an attorney prior to adopting your policy. Just as you should always clarify to donors that any information you provide to them is to your knowledge — you are not a qualified legal or financial professional, and they are urged to consult their own legal and financial advisors — you should also seek independent professional counsel. And not just any attorney will do. Just as you wouldn’t hire an obstetrician to conduct brain surgery, you shouldn’t hire an employment lawyer to provide charitable gift and estate planning advice. Call around and find who specializes in this area in your community. And don’t use a board member, either paid or unpaid; this could subject you to conflict of interest issues.
3. Have the appropriate committee(s) review the policy
The process of adopting the policies allows staff and board to work through practical issues, such as costs associated with certain gifts, potential liabilities, and all the steps involved in the gift evaluation and administration process. I generally recommend running this first through your Development Committee; then through your Finance Committee. Some organizations establish a Gift Acceptance Committee. Others use their Executive Committee.
It’s much better to work through hypotheticals, without the pressure of a pending gift to cloud peoples’ judgements. It’s harder to say “no” on a case by case basis, especially when board members or major donors – who you don’t want to upset – come to you with questionable gifts. By setting your process forth in writing ahead of time, you avoid potentially dicey conversations and maintain consistency.
Once the appropriate committees complete their review, they should vote to recommend approval by the full board.
4. Have the board adopt the policy
Besides being good practice, this is a good way to introduce gift planning ideas to board members who may wish to consider such gifts to your organization in the future. I don’t believe I ever went through this process without having a board member approach me after the meeting with a question related to their personal situation. These often resulted in gifts.
Don’t forget to bring new members on board by reviewing these policies annually.
5. Have your legal representative review the adopted policy annually
Laws change, so it’s a good idea to have your policy reviewed every year by a professional who works in the area of charitable gift planning. This can prevent mistakes and protect you from offering misinformation to your donors.
In fact, you should state you will do this annual review in your policy itself to provide your organization with an additional layer of protection.
Remind me why I need a Gift Acceptance Policy?
Even if you have the nicest donors in the world, at some point a donor may approach you regarding a gift with strings. Strings that could cause you to drift away from your mission. Or strings that could make you subject to liabilities. Or strings that make the ROI not worth the effort.
Even if you normally accept only outright gifts of cash or stock, you never know when a donor may approach you with the offer of a non-standard gift. It could be a really good deal for your nonprofit. Wouldn’t it be sad if all you could say is “I have no idea how to do that; we’ve never even considered this. Sorry.”
An Acceptance Policy Gives You Guidance
It’s nice to have a road map for how to handle various types of gifts when they present themselves! This way decisions about accepting/rejecting don’t have to be made on a whim. Or based on personality. Everyone in the organization knows where to look for guidance, and decisions are consistent.
It’s also nice to introduce the concept of making gifts from assets to your close-in ‘insiders’ – boards, committees, volunteers and staff. You do this simply by going through the drafting and approval process. Once approved, you can also put some of this language on your website so donors know you accept, for example, bequests, stock gifts, gifts from IRAs, gifts of insurance policies, and gifts of real or personal property.
The more you set yourself up to promote and receive a variety of gifts, the more likely you are to receive them!