Planned Giving: Legal Issues to Consider
When planning a gift to an organization, it is important to consider the terms of your gift and to consult with your legal/ tax advisor to ensure that your gift will be used as you intend. You also need to identify any restrictions regarding how and when the organization will use your gift. The charitable organization that accepts your gift is legally bound to follow your direction.
What do we mean when we speak of unrestricted and restricted gifts?
An unrestricted gift is a donation to be used by the charitable organization without any restrictions.. The organization is free to use it in any way that best meets its needs, whether in support of current programs, towards managing operating costs, or by applying it over time ( e.g. to fund arts education, outreach, or any scholarship programs it administers).
Examples of restricted gifts include:
Creating a restricted gift means you are in effect, establishing a trust and it is important when setting out your wishes to include the term ‘in trust.’
A long-term gift, which is often thought of as a form of ‘endowment’ refers to gifts that are held and used over an extended period of time. This usually refers to years, and in the longest form – an endowment – funds are intended to be held in perpetuity. The organization can use that income (and possibly the capital if you offer that option to the organization) for a specific application, such as a scholarship, or may be applied annually by the charity. Only charities by law are allowed to hold a gift on a perpetual basis.
There are three ways that endowments and other long-term gifts can be created: