Tag: charitable giving
It is the start of a new year and a new decade. Many of us recently enjoyed some holidays and had much to eat and drink. Many of us are also feeling the lingering effects of this merriment. I figured that an uplifting, feel good read would be a nice way to start 2020. I was thus delighted to learn about Eva Gordon, and her estate.
Ms. Gordon passed away at the age of 105. She grew up on an orchard in Oregon, never graduated from college, and worked as a trading assistant at an investment firm in Seattle. In 1964, she married her husband, who was a stockbroker. They did not have any children together. Neither Ms. Gordon or her husband came from money, and they lived a modest life. Ms. Gordon’s godson, who was the Estate Trustee, joked that if Ms. Gordon and her husband went out for lunch or dinner, then they would make sure to bring their Applebee’s coupon.
From the salary that Ms. Gordon received from her employer, she purchased partial shares in numerous stocks, including oil and utility companies, and was an early investor in Nordstrom, Microsoft, and Starbucks. Unlike many at that time, Ms. Gordon held onto these valuable stocks. As a result of this shrewd investing, Ms. Gordon’s wealth increased considerably over the latter years of her life.
Instead of wasting away her money, in her Will, Ms. Gordon decided to bequeath $10 million to various community colleges, with about 17 colleges each receiving cheques for $550,000. Interestingly, no stipulations were put into place as to how the money was to be spent by the colleges. The colleges could do with the money as they wished. For many of them, it was one of the largest donations they had ever received.
For an interesting perspective on the impact of donations to modest, as opposed to elite, institutions, you should listen to Malcolm Gladwell’s Revisionist History podcast (episode 6).
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With giving season upon us, the philanthropic impulse is stronger than ever. As prospective donors craft their charitable giving plan, they will endeavour to make their charitable contributions as impactful and rewarding as possible. Achieving this philanthropic goal requires careful consideration of the multitude of charitable giving options available to donors.
With more than 85,000 registered charities in Canada, there is no shortage of organizations to whom a prospective donor can donate. In addition, there are a variety of ways in which individuals can donate to their charity of choice, as discussed by Suzana Popovic-Montag in her blog, “Giving money to charity? Know your options to maximize your impact”.
An important consideration that can influence how and to whom a person chooses to donate is what restrictions, if any, they wish to place on their gift. Accordingly, as one evaluates the charitable giving options available to them, they should think about whether they want to make a restricted or unrestricted gift.
Unrestricted and restricted gifts
An “unrestricted” charitable gift refers to a gift made towards a charitable purpose that is free from any restrictions or limitations imposed by the donor. Unrestricted funds can be used by the donee charity in any way so long as the use of the funds supports the general charitable purposes of the organization.
On the other hand, donors may opt to restrict how their donations are used by the donee charity. These types of gifts are referred to as “restricted” or “donor-restricted” charitable gifts. As the name suggests, a donor places restrictions, conditions, directions or other limitations on their gift which constrains the use of the funds to a particular purpose, program, or project. In essence, a restricted gift can only be used for the specific charitable purpose to which it is devoted. Thus, restricted gifts have the effect of fettering the charity’s discretion in deciding where the donated funds will be allocated.
This article provides a more detailed comparison of unrestricted and restricted gifts: http://www.carters.ca/pub/article/charity/2006/tsc0421.pdf.
Charities have tended to prefer unrestricted gifts since their flexibility allows the charity to apply the funds wherever they are most needed. However, charitable organizations are increasingly recognizing that prospective donors may want a greater say in their charitable giving and might be inclined to give more if they have some certainty as to exactly how their gift will be spent. Restricted gifts can therefore be a useful tool to achieve one’s personal philanthropic goals, as well as to increase overall charitable giving.
Making a restricted gift
There are many ways in which a donor-restricted charitable gift can go awry, such as where:
- the precise restrictions imposed on the gift are ambiguous and the charity consequently administers the funds in a way the donor did not actually intend;
- the donor has given money to a very specific program or project within a charity which is not in need of funding or has been discontinued, and the surplus funds cannot be used for any other purpose; and
- the charity amalgamates with another organization, or dissolves altogether, and transfers its remaining assets (including the restricted funds) to another charity that has a sufficiently different charitable purpose such that the organization can no longer give effect to the gift’s designated purpose.
In light of the above, there are certain precautions that a prospective donor should consider taking to ensure optimum impact of their restricted charitable gift.
A donor should refer to a charity’s gift acceptance policy for guidance on what types of restricted gifts a donor can give to the charity. In particular, a gift acceptance policy will usually prescribe what purposes or uses a donor can restrict their funds to. Gift acceptance policies may also specify what language will be accepted to confirm the donor’s charitable intent and what procedure will be followed when the donor’s charitable intent is unclear or cannot be carried out. For larger gifts, it is also advisable to meet with a representative from the potential donee charity to determine whether the organization’s gift acceptance policy coincides with the donor’s specific philanthropic goals.
Donation agreements and testamentary documents can also be drafted to contemplate scenarios in which the designated purpose of a restricted gift cannot be brought to fruition. Specifically, donors may want to consider adding to these documents a contingency that permits their gift to be used for alternate charitable purposes, or permits the donee charity to vary the restriction to a use that most closely corresponds with the donor’s original charitable intent.
Thanks for reading and happy holidays!