Restricted Gifts 101

Americans are among the most generous people on earth. Their level of support for charitable organizations and people in need is legendary. Most charitable giving is accomplished by a donor simply sending money to a charity that is then able to spend that money in whatever way it thinks is best.

More and more, however, donors are looking for a deeper involvement with the charities of their choice and they are providing support in a manner that the law refers to as "restricted giving." Many donors and institutions may not even realize that there is a body of law that relates to restricted giving. Unfortunately, there is much lore that many people have received, some of which is contrary to the law.

If you donate $1,000 to your college or university, that is called an “unrestricted donation." The university is free to use that money however it believes is best. On the other hand, if you donate $1,000 to your college or university and specify that the university should use your gift to purchase books for the library, then that is a restricted donation. The university may only spend your $1,000 donation on library books and nothing else.

If you donate $10,000 to your university and specify that your donation is to be invested in perpetuity and only the income is to be used, you have made a restricted gift that is “permanently restricted.” Most people call this an "endowment gift," although the term “endowment” is now defined a bit more broadly. Referring to this type of gift as an endowment gift is part of the lore that this website will help correct.  

Adding to the permanently restricted gift confusion is the fact that many would refer to your permanently restricted $10,000 gift as an “unrestricted endowment gift.” The reason for this terminology is because most people equate the word “endowment” with “permanently restricted,” and since the income generated by your gift is available for any use, the term “unrestricted” is also applied to the gift description. 

You could also have donated $10,000 to your university, specifying that your donation is to be invested in perpetuity and that the income is to be used only to purchase library books. Most people would refer to this gift as a “restricted endowment gift” because the income generated by this gift is restricted to the specific purpose of purchasing library books.

The above is very much an oversimplification of the complex world of restricted charitable gifts. This website will be dedicated to addressing the many nuances of restricted charitable gifts and the subsection of permanently restricted gifts (what almost everyone incorrectly refers to as an endowment). If you are a donor or an administrator in a charitable organization, this is a website that will interest you. I guarantee that you will learn a great deal. I will also address any of your questions, so don’t hesitate to write to me and comment on the blog posts that spark an idea or concern.