A Pocket Guide to Fundraising Terms

Some people assume development work is a simple endeavor only requiring a modicum persuasive talents and charm (or a good game of golf and cocktail party banter). However, that’s not the case. Securing charitable contributions requires extensive technical knowledge about methods, contractual obligations, risk assessment, financial management, policies and procedures, and legal considerations (more than one would ever imagine). The following provides enough information to be dangerous, explanations supporting the complexities of development work and, hopefully, the realization that you’ll need experts to help you to secure a gift. This is the basic stuff everyone (especially administrators) needs to know.*

Two Often-Asked Questions

Can an institution reject or return a gift to the donor without the donor requesting it?

Yes. Reasons to reject or return a gift may include unethical, potentially illegal or illegal actions by a donor that harm the institution’s reputation; abusive or illegal behaviors by donors inflicted upon employees; and/or a donor pressuring an employee(s) to act unethically or illegally.

Every institution should have policies and procedures for rejecting and returning gifts to donors, as well as removing names and other donor memorials at the institution. It is always important to remember institutions are not required to accept any gift just because it is offered.

Also, individual employees should not be permitted to accept, return or dispose of any contribution without authorization and due diligence. Institutions should seek legal counsel before a gift is returned to the donor. Most importantly, institutions should have clear and accessible policies and procedures that govern the acceptance of gifts of all types and employ trained professionals to ensure compliance with institutional policies and procedures and state and federal laws.

Can a donor request their gift to be returned?

Yes. Depending on the circumstance, the institution can either honor the donor’s request or force the donor to make a claim via the legal system. An example of the latter would be a donor claims the institution violated the gift agreement and it is proven with evidentiary support in a court of law (or settled out of court).

Note: When a gift is returned to a donor, there may be tax implications for a donor if the donor reported the gift to the Internal Revenue Service and took a deduction.

Purpose and Use of a Charitable Contribution

• Restricted Gift: The gift may be only used in limited ways according to the donor’s wishes. For example, a donor gives $25,000 to be used for scholarships. The money may only be used for scholarships. Endowments are also a type of restricted gift. The monies may only be used as an investment.
• Unrestricted Gift: The gift can be used for any purpose as long as doing so follows institutional policies and procedures.

Can a gift be both restricted and unrestricted?

Yes. And it could have multiple restrictions. For example, someone could make a cash gift to a specific department like geology (restricted) but allow the funds to be used in any way the department wishes (unrestricted). They could use the money for attending conferences or purchasing storage cabinets for specimens, rock candy, or whatever, as long as they adhere to institutional policies and procedures. Or a donor could make a cash gift to a specific department like geology (restricted) and only allow it to be used for a particular purpose, such as purchasing rock hammers for seniors (two restrictions).

Methods of Giving

• Cash: Currency in the form of a check, credit card, bank transfer or online payment (PayPal, Venmo, Zelle, etc.). Some donors use credit cards and online payment methods to make recurring (i.e., monthly) gifts to an institution. Cash is the most common method of giving, especially for small to medium-size gifts. Donations of all sizes from foundations and trusts are typically transferred to the institution by this method.
• Cryptocurrency: Digital currency (i.e., Bitcoin). This means of making a charitable gift is relatively new, and institutions are developing mechanisms, policies and procedures to accept digital currencies. Most institutions treat a gift of cryptocurrency like stock gifts (see below) and sell them immediately to avoid risks associated with long-term investments and the sector’s volatility.
• Gifts in Kind: Goods or services from an individual, business or company. For example, a landscaping company may remove trees, an employment attorney may review contracts or a beverage distributor may provide drinks for an event free of charge. Note: Gifts in kind are not always tax-deductible contributions for the donor. Institutions must also consider liabilities in accepting these gifts—are providers vetted, insured and reliable?
• Intellectual Property: These include copyrights, patents and trademarks for creative works or inventions. Note: These gifts can be legally complex to receive and may be costly for the institution to manage. Does your institution have the expertise to address the day-to-day issues associated with granting permissions and billing? Is your institution prepared to handle possible litigation for infringement?
• Personal Property: Material items including but not limited to art, antiques, books, furniture, fixtures, equipment (i.e., computers, pianos, microscopes, fountains) and vehicles (i.e., trucks, golf carts, cars, boats). Items may appreciate or depreciate; how these assets will be managed and the associated costs of doing so should be considered. Note: Does your institution have policies and procedures for accepting these types of gifts (i.e., appraisals, titles, insurance, inventory systems, transfer to responsible departments and management expectations, disposal) and the expertise to evaluate condition, authenticity and value? Institutions must consider the long-term management, operational and maintenance costs of receiving gifts of personal property. Is a fountain valued at $30,000 acceptable if the installation of the fountain costs $60,000 and $5,000 to maintain annually?
• Real Property: Land and buildings. These types of gifts can be complicated, expensive and time-consuming to accept, manage and resell. Like personal property, it is crucial to have specific procedural guidelines for acceptance (i.e., clear titles, appraisals, inspections, environmental assessments. Does your institution want to be saddled with a building that needs significant asbestos abatement?) and expertise (i.e., a separate real estate foundation) to handle these types of gifts.
• Stocks: Equity or fractional ownership (shares) in a corporation. Donors can transfer shares of stock to an institution to make a charitable contribution. Typically, the institution sells the stock immediately for cash to use or invest according to its policies. For example, a donor may instruct their stockbroker to transfer 100 shares of Coca-Cola to a charitable institution. On the day of transfer, each share of stock was valued at $56 per share. So, the donor made a gift of $5,600. (Note: The exact valuation of the gift is slightly more complicated than this.)

Could someone make a gift using multiple methods?

Yes, that’s called a blended gift.

For example, someone might give an art collection (personal property); they also have a moving company and transport the art to the institution at no charge (a gift in kind), the art needs some framing and conservation, so they provide for it (cash), they provide an endowment for long-term care of the collection (stocks), and they name the institution in their last will and testament (bequest—see below).

Are all gifts tax-deductible?

No. It depends.

The IRS has many rules about the tax deductibility of charitable contributions. According to best practices, documentation of a gift and its potential for tax deductibility for a donor should only be provided via the institution’s advancement services department. No employee or board member should assume and convey to a donor that a gift is tax-deductible; the donor’s professional tax adviser should determine tax deductibility.

Timing (When the Gift Is Given)

Planned: This means all or a majority of the gift will be given at some time in the future when the donor has passed away. The typical planned gift vehicle is the donor’s last will and testament. Here, the donor expressly states what portion of assets the institution shall receive when the donor dies. It can be all, a specified amount or a percentage of the donor’s estate. The donor can also state any restrictions for the use of the assets.

There are other vehicles donors may use to make planned gifts, such as trusts. There are several types of trusts and manners of disbursement. Some trusts make annual disbursements to the institution (or the donor) until the donor’s death. After the donor’s death, the institution may receive the principle of the trust or a portion of it.

Pledge: The amount of contribution and timing are contractually determined. For example, a donor may agree to give a total of $100,000 by giving $20,000 each year for the next five years.

Outright: The gift is given with immediate effect.

Can a donor make a large gift using one or all the timing methods listed?

Yes. Sometimes during major comprehensive fundraising campaigns, donors make significant commitments. For example, a donor may agree to give $15 million by giving $1 million outright in the current year, pledging to give $2 million each year for the next four years, and making $6 million via a bequest.

*The information in this article should not be construed as legal or tax advice.