When you want to create and preserve a charitable legacy, after identifying the charity you want to benefit it is critical that your gift be memorialized in writing by a gift agreement.
What should a gift agreement include?
Restrictions in the use of funds - A gift agreement should articulate your intentions, including the description of any restrictions in the use of the funds or other assets gifted. Using an agreement to describe restrictions on a gift is key should the charity ever experience financial difficulty because restricted funds are generally not includible in a charity’s bankruptcy estate.
Rights to enforce the agreement - In addition to articulating any restrictions on the use of the gift, the agreement should include a provision that grants you, the donor, the right to enforce the agreement if the agreement is violated. Your gift agreement should provide that this right to enforce is in addition to any rights that the attorney general of the state is granted under law. Traditionally, donors have lost the right to enforce the terms of a charitable gift once the gift is complete or favorable case law giving ability to enforce the gift was not assured in every state. Recently, states adopting a law known as the “Uniform Trust Code” may now give the donor authority to enforce the terms of a charitable trust. That being said, it is best not to rely on such statutory authority due to questions on whether a charitable gift creates a “charitable trust” in every instance. It is the best practice to include an express provision in a gift agreement allowing you to enforce the agreement.
Publicity and naming rights - Keep in mind that charitable gifts frequently involve publicity and recognition through naming rights that can range from naming a building to naming a room in a building, to naming a nonphysical asset, like an endowed chair. A charitable gift agreement should include whether or not there will be publicity related to your gift and the nature of any signage where a naming right of a physical asset is included.
IRS exemption letter - It is also a good practice to ask for a copy of the charity’s exemption letter from the IRS, update the charity’s status online or the IRS website, and include a provision in the gift agreement whereby the charity warrants that it is in good standing and is a public charity exempt from taxation under Internal Revenue Code Section 501(c)(3), contributions to which qualify for the charitable income tax and gift tax deduction.
Because donors and charities are allied in their goal to finalize a charitable gift, necessary details to gift agreements can often be overlooked by each party. Neither donors nor charities should assume that boilerplate documents contain all of the provisions that should be in their agreement. By working together to outline a donor’s intentions in writing, donors and charities can achieve their mutual goals.