Not long ago, a generous philanthropist left a multimillion-dollar gift to a highly regarded academic institution directed towards research with a specific Doctor. But rather than welcome her donation and treat her with the respect she deserved, a representative in the development department continued hounding her for additional funds, an immediate payment and that it be paid into the general fund, ignoring her wishes to accommodate the institution’s goals.
Fortunately, the donor was able to rectify this uncomfortable situation with the help of financial and legal professionals by drawing up an agreement spelling out some conditions of the multi-year gift. Unfortunately this type of mismatch occurs all too frequently, between the desires of donors and the focus of the non-profit organizations.
If you plan to make a major philanthropic gift of $250,000 or more, you should consider the following best practices to avoid facing a serious problem in the future:
First, engage an experienced professional to help you draw up a formal agreement that will govern the roles and responsibilities of the recipient organization. This step is particularly important if you are giving a major gift over a multi-year period.
Determine the most tax-efficient way to structure your gift, for example, you could donate low basis shares of stock (i.e. shares that have appreciated significantly in value). By donating low basis shares, you will be credited with the current value of the stock without being liable for the capital gains tax.
Be sure the recipient of your gift uses the proper accounting formula to value your gift of stock. While the Internal Revenue Service (IRS) has very specific regulations, do not assume that the recipient of your gift will follow those rules; often times they base it on when they sell the stock.
Spell out the purpose of your gift in as much detail as necessary. For example, if you want to support a physician or scientist’s research, you should name that person and identify the line of research you wish to fund. This will limit the recipient’s ability to shift your gift to other priorities.
To ensure accountability, ask the organization to provide you with regular progress reports on the use of your funds and the results of your gift. If there appears to be little progress toward achieving your desired goal, you could discuss the issue to determine the reason and if necessary, terminate the gift.
Give yourself the option to withdraw your gift if the recipient violates the conditions you have specified in the agreement. Many things can change over the course of a multi-year gift. For example, a researcher could move to a different institution, or the non-profit could change its mission or purpose. Your agreement should give you an “exit clause” for a change in circumstances.
Finally, be sure to consider the issue of recognition. Although some donors prefer anonymity, others appreciate the possibility of being recognized for their support. If you would like to see your name, your family or your foundation being honoured by the recipient organization, be sure to include a provision in your initial agreement.
As a potential major donor, you have tremendous bargaining power when discussing the goals and objectives of your gift. An experienced financial professional can guide you through the philanthropic process so your generous gift will have a lasting impact.
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