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Posted July 18th, 2019

Three Key Gift Acceptance Policy Provisions

The purpose of a gift acceptance policy is to keep a charity, especially its president and its development officers, out of trouble in dealing with donors.

Three problem areas that are major problem areas for charities but which are seldom addressed in gift acceptance polices are [1] appraisals, [2] gift receipts, and [3] pledges. Let’s look at these matters in reverse order.

Pledges: Especially big pledges. Why pledges. Why big pledges? Because big pledges tend to be negotiated by the president or other top officials of the charity. These officials will hardly if ever know the legal rules that apply to pledges. The result can be a tax law nightmare.

It turns out that most big pledges -– say, pledges of $100,000 or more — are enforceable as contracts, as are some smaller pledges. Not because the charity would ever sue to enforce (although that has happened). But because the law of contracts that applies to pledges always operates regardless of whether the parties to the pledge know the local contract law as to pledges.

For example, there’s a fairly recent appellate decision from New Jersey involving a mere spoken pledge for $25,000, as to which the pledgor received a complaint and summons from the charity when he reneged on the pledge. The New Jersey court HELD the pledge was enforceable. In New York and most other states, on the other hand, a pledge doesn’t become enforceable unless the donor receives consideration from the charity, such as the charity’s agreement to place the donor’s name on an endowed fund or on a building or a college. But that typically does occur with big pledges.

So what if the pledge is enforceable? It turns out that if Ms. Scarlett makes an enforceable pledge, neither her private foundation nor the private foundation of her husband, her child, or her parents can pay a single penny on the pledge, because of the tax law prohibition against self-dealing.

It also happens that individuals who make big pledges typically are wealthy and often do have their own family foundations.

We’ll continue this discussion and then turn to gift receipts next time.

by Jon Tidd, Esq

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