Posted February 1st, 2014

Sometimes Acknowledging a Gift Is Not as Simple as It Seems

When a donor makes a gift, the most important thing for a charity to do is to acknowledge the gift quickly with a letter, appropriate receipt and possibly a phone call or personal visit, depending on the size of the gift, its use and the charity’s resources.

But sometimes acknowledging a gift is not so straightforward. Consider these situations:

Q. A donor made a gift through a donor-advised fund. How should I acknowledge the gift?

The advised fund should be receipted for the gift. The donor who “advised” the gift should be acknowledged with a thank you letter, but the tax-deductible gift was made to the fund. The donor should not be given a receipt for the gift.

Q. When a donor gives from a revocable trust (sometimes referred to as a “living trust”), does the donor receive the tax benefits of that gift?

A. With a living trust, all the tax ramifications flow through to the donor and are reported on his or her individual tax return. A donor who makes a gift through a living trust should receive an acknowledgment for the gift and should report the gift as a charitable deduction if the donor itemizes. The revocable living trust does not file a separate return.

If the gift is instead made through the donor’s personal foundation, the acknowledgment would be made to the foundation as the foundation is a separate legal entity. Nothing would be claimed on the donor’s personal return.

If in doubt, it is important to contact donors to determine the nature of a particular entity. It can be difficult to distinguish between entities that are equivalent to the donor and those with a separate legal identity.

These questions and others are answered in Sharpe’s popular seminar “Gift Planning Fundamentals.”

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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