Considerations in Negotiating and Drafting Gift Agreements

A gift agreement is highly recommended for a person desiring to create a legacy gift in their estate plan for their family while also providing assistance to a public charity. It is not a legal requirement in order to make a gift. A gift takes place as soon as a donor transfers ownership of property to a charity without consideration. This can be in the form of cash or even noncash items. A donor should consider a gift agreement if they have a large complex gift, if the donor has restrictions on the gift or if the funds will be received by the charitable organization at a later date. In these situations, the agreement is necessary to ensure the donor’s promise can be relied upon, set expectations of donor and donee and prevent any misunderstanding of the terms of the gift.
When working with a gift agreement it is important to distinguish if the donor has a gift agreement or a pledge agreement as they are often used interchangeably, especially when a current gift includes a pledge to make a future contribution. A gift agreement documents a gift has been made by the donor to a charitable organization and is legally enforceable. A pledge agreement records a commitment by a donor to make a gift at a future time. It is generally not enforceable by law unless two elements have been met: there has been consideration given to the donor and the charity can establish that it has detrimental reliance on the pledge.
There are several items that should be included or considered when creating a gift agreement. Below is a list of some of those items:
- Legal name of the charity
- Legal name or names of the donors. For a married couple it is important to identify if the gifts will be given jointly or by only the husband or wife.
- Detailed description of exactly what is to be contributed and the dates on which it will be contributed. This could include the amount of cash, specific securities, or legal description of real estate. The donor should consult with their CPA on which assets are the best to gift to a charity.
- State that the donor’s gift is unconditional and irrevocable, and the designation of the charitable organization is irrevocable. The donor can retain the right to change which nonprofit organization the donation goes to.
- Statement that if the donor passes away prior to the fulfillment of the promise to give, the donor intends, and hereby instructs his or her personal representative to fulfill the promise.
- Identify if the gift is unrestricted or restricted. If restricted there needs to be a statement for what the gift will be used for and the time period when the gift will be expended. If the gift is permanently restricted for endowment, there should be a statement as for what the earnings may be used for and when they can be used.
- Statement describing any other restrictions or terms that have been agreed upon by the donor and the charity. An example of this is if a donor wants to donate money to start a fundraising drive at the charity. The donor can state they will donate a certain dollar amount if the charity can raise matching funds over the next 5 years. If the charity does not raise the matching funds than the portion that is unmatched could be given back to the donor’s advised fund and donated to another charity.
- Signatures of each donor and an authorized representative of the nonprofit organization.
The more precise the gift agreement is the less likely there will be any misunderstandings of the intentions of the donor and donee. Above is only a small list of items to consider. It is not intended to be comprehensive, nor does it constitute legal advice. It is recommended to seek legal counsel when entering into legal agreements.