A promise is a promise. But that doesn’t always mean that it can or will be enforced — especially in the area of charitable giving. Donors sometimes make charitable pledges, but intervening events, such as an economic downturn or dissatisfaction with how the charity uses the gift, may cause donors to delay or even fail to fulfill their pledges.

Documenting major gift transactions can help avoid misunderstandings on both sides. For most gifts, maintaining simple written records of the gift promise and documentation of receipt is sufficient. For major gifts (i.e., capital improvements or endowments), it is a good idea for the donor and charity to sign a gift agreement outlining the terms of the gift. This ensures that both sides have the same understanding of the terms of the gift when the gift is made.

The terms of these agreements can vary, but at a minimum should:

  • Identify the gift, the schedule of payment, and the purpose of the gift.
  • Outline whether property other than cash can or will be used to satisfy the commitment.
  • Clarify whether the agreement is intended to be a statement of intent (with no legal obligation to make future payments, but conversely more flexibility to satisfy payments from foundations or donor-advised funds) or a binding pledge (legally enforceable against the donor or the donor’s estate).
  • Establish terms and conditions of any naming opportunity.
  • Outline procedures for approving press releases or publicity related to the gift.
  • Specify which jurisdiction’s law applies to the agreement.
  • Include procedures for altering or amending the pledge if circumstances change.
  • For restricted gifts, outline alternatives should initial restrictions become impractical.

If it does not already have one, a charity should consider adopting a gift acceptance policy to govern the acceptance and recording of gifts. While the specifics may vary depending on the charity’s mission and circumstances, common elements of such policies include:

  • Identifying who within the organization has the authority to review, approve, or decline proposed gifts—especially those that may create an administrative burden or risk, incur excessive expenses, or fall outside the scope of the organization’s mission.
  • Defining the types of gifts that will be accepted and detailing the procedures for valuing, accounting for, and recording gifts.
  • Outlining procedures for handling both restricted and unrestricted gifts.
  • Detailing the documentation required for all gifts, particularly multi-year, challenge, or capital gifts.
  • Identifying planned giving opportunities and vehicles.

Clarity around these issues fosters positive donor relationships, improves efficiency, and helps reduce legal fees in the long run. Gift acceptance policies are particularly important in volatile economic climates, where donors may request to fulfill pledges with assets other than cash or seek to be released from commitments they have made. These policies help establish clear expectations and “rules of the road” at the outset of a donor relationship.

About the Author: Emily Wagman is an associate in the Nonprofit Group at Hemenway & Barnes. Emily advises tax-exempt organizations, including private foundations, public charities, and colleges on tax rules and procedures, governance, contracts, research and licensing agreements, and compliance matters.