September 2, 2014


The importance of a gift acceptance policy

[Editor's note: The following article was prepared by Wachovia Trust Nonprofit and Philanthropic Services.]

Turning down a gift runs contrary to the normal inclinations of a nonprofit organization. As counterintuitive as it may seem, in some circumstances it makes strategic and financial sense to say "No thanks."

However, simply deciding on an ad hoc basis to accept or reject a gift opens the door to potential problems. It's generally far better to determine in advance which types of gifts are acceptable and which may be more trouble than they are worth.

The most effective approach to identifying acceptable gifts is through the creation of a gift acceptance policy. The purpose of such a policy is to govern the acceptance and administration of gifts and to offer specific guidance to donors and their advisors in completing gifts.

Gift Policy Objectives

An effective gift-acceptance policy should be formalized, in writing, and must achieve three primary objectives.

First, it should identify the types of assets your nonprofit will accept (e.g., cash, real estate). Next, it should provide guidelines as to the forms of gifts that are acceptable (e.g., charitable trusts, gift annuities). Finally, it should define your nonprofit's role in administering the gifts.

But that's not all. To meet the needs of your nonprofit and to help protect your resources and reputation, your gift acceptance policy should also:

  • State that your nonprofit will obtain legal input and advice when appropriate.

  • Specify limits your nonprofit may want to impose, such as maximums or minimums in regard to charitable gift annuities.

  • Detail any restrictions that donors will be permitted to place on gifts.

  • Outline the responsibilities that donors have with respect to obtaining appraisals for their own tax purposes.

  • Identify the specific circumstances under which your nonprofit organization will obtain an independent appraisal.

  • Outline how your nonprofit plans to acknowledge gifts.

  • Note the time frame for communicating with donors.

  • Specify the procedures for amending the gift acceptance policy.

Identifying Acceptable Assets

Your organization should list the types of assets and forms of gifts it will accept. In addition, you'll want to identify any issues particular to specific gift types, as well as ways to resolve these issues.

For example, a gift of a business interest may not be marketable or be particularly easy to value. Does your nonprofit have a standardized process for handling gifts of this type?

Cash

Cash is the most common type of gift. However, some cash gifts come with restrictions. Your gift acceptance policy should specify how your organization will deal with restricted cash gifts.

Will accepting such a gift, for example, mean that the gift has to be treated as a separate trust? If it does, that gift generally will not be considered public support and, if it's a sizeable gift, it may cause your organization to fail the IRS's public support test.

Securities

Donors who make gifts of appreciated securities can avoid realizing capital gains on those securities and typically can take an income-tax deduction for the securities' full market value.

Your gift acceptance policy should outline the steps your nonprofit will take when it receives gifts of securities. For example, you need to know how to proceed if there are restrictions on the sale of the securities.  Ideally, your gift acceptance policy should allow your nonprofit to convert securities to cash upon acceptance.

Tangible Personal Property

Gifts of art, furniture, jewelry, cars, boats, coin and stamp collections, and other personal property are among the types of gifts most commonly received by nonprofits.

Your organization's gift acceptance policy should outline the way it will determine the value of such gifts and their marketability. This is especially critical when tangible personal property is received in exchange for a gift annuity.

The policy might also include a review that asks and answers a series of questions related to the gifts, for example: does the property help fulfill the mission of your nonprofit? Are there are any undue restrictions on the use, display, or sale of the property? The answers to questions such as these can help your nonprofit avoid expensive mistakes. 

Intangible Property

This category includes intellectual property, royalties, contracts, life insurance policies, and promissory notes. By their nature, gifts of intangible property can be difficult to value. Your gift acceptance policy should reflect your nonprofit's procedures for valuing these types of gifts and include a process for determining whether such gifts help your nonprofit advance its mission.

Closely Held Securities

These securities include debt and equity issues of C and S corporations as well as of limited liability companies and limited partnerships. Since they generally are not publicly traded, attaching an accurate value to these gifts is critical. Your gift acceptance policy should address issues such as restrictions, valuation, marketability, and potential tax liabilities associated with such gifts.

Real Estate and Mineral Rights

Your nonprofit organization should be very careful about performing due diligence on gifts of real estate  ¾  verifying clear title on the property, determining the existence of any debts or back taxes, and performing an environmental impact survey.

As part of that due diligence process, your gift acceptance policy should outline the questions that must be answered before you accept a gift of real estate. For example, how will your nonprofit use the property? What are the costs of carrying and managing the property? Will your nonprofit have to pay unrelated business income tax on income from the rental or sale of the property if it assumes the mortgage on the property? Your gift acceptance policy should anticipate and provide guidance on scenarios such as these.

Gifts of oil, gas, and mineral rights present their own set of unique problems. Before you accept such gifts, you need to determine the form of interest being gifted and the predictability of the potential income. Managing or selling a gift of oil, gas, or mineral rights may require the assistance of outside professionals. Your gift acceptance policy should address these and other issues.

Who Should Be Involved in Creating Your Policy

Your planned giving staff, your director or president, and your oversight committee should all collaborate in exploring, discussing, and drafting your organization's gift policy. And don't hesitate to seek out professional advisors with expertise in various areas who can add depth and insight to your discussions.

The ultimate aim of this process is to develop a policy that specifically relates to your organization's needs and can serve as resource to your staff members.

Once your gift acceptance policy has been developed, you'll want to submit it to your board of directors for approval and formal adoption. Ideally, the policy should be reviewed at least annually. You can then do some fine-tuning in light of any unusual circumstances or situations that may have arisen during the prior year.

For more information on how Wachovia Nonprofit and Philanthropic Services can help you develop and implement a gift acceptance policy for your organization, please contact your Wachovia Philanthropic Consultant.

Trust services are offered through Wachovia Bank, N.A., a national banking association and subsidiary of Wachovia Corporation, or Delaware Trust Company, N.A., a subsidiary of Wachovia Bank. Trusts that have their situs in and are governed by the law of Delaware, use Delaware Trust Company as the trustee. Wachovia Trust is a brand name for trust services offered by Wachovia. Wachovia Trust does not provide legal or tax advice. 


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