Development professionals need to use care and foresight when making asks of donors, or they may inadvertently create restrictions on gifts which could bind their organization in unwanted ways. It is always important to honor the intent of the donor, in order to retain the confidence of donors in your organization.
Enforceable restrictions, either permanent or temporary, can be placed on gifts either by the express instruction of the donor, or by the language of the solicitation or ask made of the donor, either written or verbal, by the development department (ARS 10-11801(2)). These restrictions placed on donated funds are an enforceable contract between the donor and the organization which must be adhered to. The restrictions placed of gifts by way of the organization’s ask or solicitation are very different from a “designation” placed on donated funds by the organization’s Board of Directors, which may be removed or modified by the organization at any time. Restrictions placed on gifts through the ask or solicitation may only be modified or removed by permission of the donor.
Organizations must ensure that they keep careful records of all restrictions on the use of funds, so that later disagreements or misunderstanding with donors, or their heirs, can be avoided. In the case of major gifts, a written gift agreement is always good idea, or with smaller restricted gifts, the restriction can be restated on the gift receipt which is sent to the donor. Written solicitations which contain proposed restrictions should be permanently retained by the organization.
Issues arise when the organization’s needs change or expand after funds have been raised. The organization may face a dilemma about whether to go back to donors and seek permission for a change in the restriction. Unfortunately, sometimes organizations simply decide to spend restricted money for uses which go beyond the restriction, or at best are a very expansive interpretation of the restriction. Although often the organization will experience no visible repercussions, donors may suffer a loss of confidence in the organization. This could make future fundraising more difficult, or, as one organization I know experienced, they could even be subject to a lawsuit by donors or their heirs, seeking to enforce the original restriction or else force the gift to be returned.
In a very simple example which I encountered at a recent presentation, a church solicited funds from donors to pay to purchase a publication which would be distributed free to the church members. As a result of this solicitation, the church raised more money than needed to pay the cost of obtaining the publication. I was asked by the church whether they could use the excess money raised for other needs. Simply, the answer to that is no, unless the donors agree to a different use. If the church had wanted flexibility in the use of funds, it should have solicited the funds to be used for the purchase of the publication, or other needs of the church once the cost of obtaining the publication has been met. Having failed to include this flexibility in the language of their solicitation, the only way that the church will be allowed to use the donated funds for purposes other than obtaining the publication would be to ask the donors for permission to use the funds for other purposes (ARS 10-11805(A)).
The main lessons to be learned are that development professionals should be precise, and anticipate future needs to the extent possible, when making asks of donors. Development professionals may also not be aware that the way that asks are worded can create permanent or temporary restrictions on funds, which will bind the organization. If the organization later wants to use those restricted funds for a different use, then it’s important that the organization go back to donors, or their heirs, and ask permission, even though this risks the possibility that the donor may say no.
