Gift Agreements
/A charitable gift agreement is a written document that delineates the terms of a donation and that is usually initiated by the nonprofit recipient organization. It’s a way to put in writing each party’s expectations and obligations, and ideally provides protection to both the giver and the recipient. Donors are not often asked to sign a gift agreement for smaller donations. Gift agreements are common for major gifts, especially those that come with special conditions such as naming rights or payout in multiple installments.
The agreement is most often the final step that sums up what has already been verbally discussed between the donor and the nonprofit. By the time you are presented with a gift agreement to sign, you and the recipient organization should already have reached a shared understanding of the purpose of your gift and any terms or restrictions attached to it. This generally happens through a series of discussions between the donor and nonprofit fundraising staff.
What’s typically in a gift agreement?
Based on discussions between the donor and the nonprofit, the organization’s staff will create a gift agreement that specifies the terms of the gift.
The basics. At a minimum, a gift agreement will include the amount of the pledged gift, the timeline for payment or payments (in the case of a multi-year pledge), how the funds can be used, and how the gift will be recognized. The agreement will state the legal name of the nonprofit receiving the donation (maybe your intention is for the donation to go to a cancer center, but the donation officially goes to the university that is its parent organization) and the legal name of the donors (for a married couple, it is important to identify whether the gifts will be given jointly or by only the individual spouse).
Gift restrictions. If you are making a restricted gift — that is, a gift for a specific project or program, or for an endowment — the agreement will indicate the purpose of the restricted gift, including how the funds can be spent and whether they need to be spent within a particular time frame. If you are making an unrestricted general operating gift, that would be indicated in the agreement. The gift agreement may state what the organization can do with the gift if the purpose for which it was given ceases to exist or if the organization does not raise the amount of funds from other sources that it needs to complete the purpose.
Statement of the unconditional and irrevocable nature of the gift. When a donation is given to a nonprofit, by law, it is given unconditionally and irrevocably, which does not negate the gift restrictions outlined in the agreement. It simply states that the donor’s gift is unconditional and irrevocable in the sense that the donor no longer has control over how the nonprofit spends the money in service to the restricted purpose.
Gift conversion or investment considerations. The gift agreement will detail exactly what is to be contributed and the dates on which it will be contributed. This could include the amount of cash, specific securities or legal description of real estate. If your donation is given in stock, real estate or some other non-cash form, the gift agreement will state how and when the organization will go about converting the assets to cash. For donations to a nonprofit’s endowment fund, the agreement will likely also include information about how the organization’s endowment assets are invested and managed.
Donor recognition. The agreement will outline whether the donor wishes to be anonymous or how the gift will be recognized and/or publicized. This may include naming rights, as well as the exact language to be used for any program, project or facility name. A gift agreement may also address how the gift will be publicized — for example, whether there will be a press release or social media announcement of the gift — as well as whether the organization will retain the right to use the donor’s name or photo in publicity.
The responsibility of your estate. The gift agreement may include a statement indicating that in the event of your death, your estate will be expected to fulfill the pledge. This can be especially important to protect nonprofits when it comes to multi-year pledges with a long payment timeline.
Morals clause. It is becoming increasingly common for gift agreements to contain what is called a morals clause or a misconduct clause, stating that if the donor does something that could compromise the public trust or reputation of the organization, the organization has the right to remove their name or return the gift.
Reporting details. An agreement might also indicate what type of reports the donor will receive and when.
Key considerations
A gift agreement should be a relatively straightforward statement of facts concerning your donation, and to have those spelled out for both sides is great for everyone involved. Still, there are some considerations to be aware of.
It’s a contract, which may feel transactional. Many donors give from the heart, and a gift agreement may take the donor relationship to a place that feels more like work. That’s not a reason to avoid pursuing a gift agreement, because it is likely to prevent any misunderstandings and disagreements later. The nonprofit will usually have a standard agreement template as a starting point, which they’ll customize to reflect the specific terms of your gift based on discussions you have had with the nonprofit.
The agreement will leave wiggle room. It’s common — and sensible — for the nonprofit to have language in the agreement allowing it flexibility as conditions evolve. If circumstances change dramatically and the original project plan is no longer feasible, or if the donor is no longer able to keep paying according to the agreed-upon schedule, an agreement with built-in flexibility will allow the nonprofit to use the funds in another way that still honors the donor’s intentions while adapting to unforeseen changes, or to renegotiate the pledge timeline or adjust the funded program in relation to actual funds given. (Not fulfilling a pledge is a big deal that may have legal or other repercussions; it is not something to be taken lightly. The flexibility mentioned here is simply to ensure the nonprofit is not stuck in an impossible position if a donor fails to meet their pledge obligations.)
The agreement gives the donor only so much control. Gift agreements are governed by laws, including those pertaining to self-dealing. There are IRS rules regarding how much control a donor can have over how their gift is used and still call it a charitable donation, and there may also be applicable state laws.
Taking Action
Gift agreements aren’t created just to prevent misunderstandings; they also show the donor that the nonprofit cares and that the donor is valued and important.
So you’re about to sign a gift agreement? Here are some tips:
Communicate early. If you have specific expectations regarding your gift, you’ll want to communicate those clearly to nonprofit staff (usually the major gifts officer) and make sure they are agreed upon in writing in the gift agreement. Anything that is important to you regarding your gift should be in the agreement, whether that’s a restriction on how the funds will be used, how frequently you expect reports (if you expect reports at all), or the exact language you want to see when your family is named on the side of the building you’ve funded.
Check the details. Go back through your emails or notes from gift conversations. Make sure all the details in the gift agreement are correct, like the amount and timing of your gift.
Professional advice. You may want to have a gift agreement reviewed by your attorney before you sign.
