Wrapping up a gift acceptance policy

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When you receive a gift from a contributor, do you immediately feel fortunate and quickly send a thank-you note from your organization? If you do, that’s likely a mistake, because all gifts aren’t created equal. Having a gift acceptance policy to refer to — and using it to decide if you should accept a donation — is important to your organization’s balance sheet, workload and reputation.

Saying “no” to a gift

While it might be human nature to accept gifts graciously, some nonprofits are turning certain gifts down, citing issues of condition, space limitations and unsuitability to their missions.

A gift acceptance policy provides an objective way to decline a gift but still maintain a good relationship with the contributor. A representative of your nonprofit can explain to the donor that previously set policy doesn’t allow your organization to accept the gift — in other words, “it’s nothing personal.”

Moreover, a gift acceptance policy contributes to good governance because it disciplines your organization to weigh the advantages and disadvantages of accepting and administering a gift. Also, the revised IRS Form 990 asks nonprofits receiving more than $25,000 in noncash contributions whether they have a gift acceptance policy. (A policy isn’t legally required, and the form currently solicits no details.)

Finding a perfect fit

A strong gift acceptance policy describes what kinds of gifts are acceptable and how they will be managed by your organization. It also should state your organization’s mission, the policy’s purpose, and the types of gifts that should be reviewed by an attorney before they’re accepted. And it should include the role of your nonprofit’s gift acceptance committee, if you have one, and the steps involved in an annual review of your gift policy and who will conduct it.

Mold your policy to fit your nonprofit’s size and characteristics and involve both your staff and your board in the development process.

Judging what you can handle

When forming your gift acceptance policy, start with a self-assessment. Your nonprofit must determine its ability to manage each type and form of gift. For example, it may not want to accept gifts of real estate if it isn’t staffed to manage the property or isn’t willing to act as the landlord.

Another example: Tangible personal property, such as furniture or collections, may need insurance, special display cases or off-site storage. This could require your organization to incur substantial out-of-pocket costs for years to come. Ask yourself if your nonprofit has the resources to manage such gifts — and whether it wants to do so.

All policies should state that gifts that conflict with your organization’s mission should be rejected. The policy also should address how gifts will be managed and invested (if applicable) and how the nonprofit will dispose of them.

Pay special attention to any restrictions that donors place on gifts. Almost all organizations prefer unrestricted gifts so they can use the funds as they wish. But donors of personal tangible property likely will want to specify how their gift will be used.

Understanding what’s what

Gifts typically fall into two categories. With current gifts, your charity receives property or money from a donor, and the donor receives no financial benefit other than a tax deduction. There may be restrictions on how the gift can be used, but your organization — not the donor — has control.

In the case of split interest gifts, the donor transfers an asset (or an interest in it) to your organization but draws income from the gift or receives a remainder interest at some point in the future. Or the donor names another beneficiary to receive the income or remainder interest. Common forms of split interest gifts are charitable gift annuities, charitable remainder trusts and charitable lead trusts.

Investment responsibilities and obligations to the donor or the donor’s family come with a split interest gift, so make sure you have the resources to monitor it properly. Your administration of the gift should demonstrate fairness to both your nonprofit and the donor.

Considering all the angles

Some gifts will incur extra expense, such as a special cabinet to display that rare coin collection or an insurance policy to protect its value. Here are examples of two other types of gifts requiring special attention:

Securities. While publicly traded securities are easy to convert to cash, closely held stock may be hard to value and sell. So different policies are needed for each type of security.

For example, because donors of publicly traded stock often have the expectation that the nonprofit will hold on to the stock, gift acceptance policies typically state that stocks are to be sold upon receipt. That way the donor won’t be unpleasantly surprised if you sell the stock. This also ensures flexibility managing your investment portfolio.

Gifts of closely held stock, on the other hand, require scrutiny before acceptance because of the valuation, liquidity and other complex issues that affect such stock. Your gift acceptance policy should outline the steps your organization must take before acceptance.

Real estate. Many steps precede accepting a gift of real estate, including getting a recent appraisal from the donor and a disclosure of any property liens or other encumbrances. And your organization likely will need to contract a hazardous waste audit.

Additionally, there are different types of intangible personal property that may be donated to a charity, such as life insurance policies, intellectual property and royalties. Your policy should describe how these gifts will be valued and administered.

Getting an outside opinion

Your financial advisor and an attorney should review your gift acceptance policy before it comes before the full board for approval. After your policy is in place, review it annually. Resources could change, and your experiences might dictate revision.•

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