Designating your charitable contributions

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A charitable contribution is a gift, and, like any gift, is an irrevocable transfer of a donor’s entire interest in the donated cash or property. Hence the donor’s entire interest in the donated property is transferred, and it is for the most part (except for “designated” uses) impossible for the donor to recover the donated property.

Undesignated contributions Most charitable contributions are undesignated, meaning that the donor does not specify how the contribution is to be spent. An example would be a church member’s weekly contributions to a church’s general fund or a contribution to the United Way or World Vision. Undesignated contributions are unconditional gifts and there is absolutely no legal obligation to return undesignated contributions to a donor under any circumstances.

Designated contributions A donor can make a “designated” contribution to a charity, where the donor designates how the contribution is to be spent. Where such contributions are held in trust for a specific purpose, and insofar as the charity honors the designation, or plans to do so in the foreseeable future, it has no legal obligation to return a donor’s designated contribution.

Where designated contributions will not be used for the specified project, and donors can be identified, they should be asked if they want their contributions returned or retained by the charity and used for some other purpose. Ideally, donors should communicate their decision in writing to avoid any misunderstandings. Charities must provide donors with this option in order to avoid violating their legal duty to use “trust funds” only for the purposes specified.

A charity should send a letter to donors who request a refund of a prior designated contribution informing them that (1) there may be tax consequences, (2) they may want to consider filing an amended tax return to remove any claimed deduction, and (3) they should discuss the options with their tax advisor. Charities should consult with an tax attorney when deciding how to dispose of designated funds if the specified purpose has been abandoned or is no longer feasible.

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The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This content was prepared by Adviceon® for the benefit of the advisor Harvey Garraway who is a Investment Funds Advisor at Investia Financial Services Inc. a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.