Gifts with Strings Attached: Restricted Giving Doesn't Have to Leave an Institution in a Tangle

By Logue, Ann C. | University Business, May 2006 | Go to article overview

Gifts with Strings Attached: Restricted Giving Doesn't Have to Leave an Institution in a Tangle


Logue, Ann C., University Business


FACULTY AND STUDENTS PUSH KNOWLEDGE FORWARD IN THEIR own ways every day. They expect that freedom, and the academy is designed to give it to them. But donors, whose gifts often come with usage restrictions, may not be so generous.

"The whole notion of restrictions from the donor's side stems from two areas," says Charles Gordy, managing director of Planned Giving Services at Bank of New York. "One is control, making sure the money is spent in the manner you want it spent. The other is legacy." In fact, he says he'd be surprised to learn of a gift of more than $1 million that doesn't come with strings attached.

Many donors want restrictions because they're concerned about the accountability of nonprofit organizations. According to Brookings Institution research released in September 2004, 31 percent of Americans believe charitable organizations are very good at helping people--yet only 11 percent believe nonprofits are very good at spending money wisely. A mere 19 percent believe these organizations are very good at running their programs or services.

"As long as we've had private philanthropy, we've had these issues," explains Evelyn Brody, a professor at Chicago-Kent College of Law at Illinois Institute of Technology who researches issues surrounding charitable giving. Still, restricted gifts aren't handcuffs. With careful strategic planning, an institution can identify its needs and seek out donors with matching interests. Carefully crafted agreements can help donors understand the limits of their gifts--and a willingness to turn the occasional gift away can help keep the school on its long-term mission track.

Larger Gifts, Fewer Givers

The Council for Aid to Education's latest report on institutional giving found that donations increased by just under 5 percent, to $25.6 billion, between 2004 and 2005. Gift totals for capital purposes, which are often restricted, increased by 5.6 percent, faster than giving as a whole. At the same time, the number of donors appears to be falling; alumni participation has fallen steadily and now stands at 12.4 percent, down from a high of 13.8 percent in 2001. Although respondents weren't asked about restrictions, the trend toward fewer people making larger girls for capital campaigns would be consistent with an increase in these types of gifts.

Greg Norwell, a trusts and estates lawyer at Defrees & Fiske in Chicago, advises clients to add restrictions on bequests in their wills. At a minimum, an institutional recipient should get a bequest only if it is still in existence and operating as an IHE. Many of these donations are small enough that they may not even come to the attention of a university's planned giving staff, but Norwell says that donors still deserve to know that their money is going to its intended purpose.

For larger donations, Norwell says gift givers may set up a supporting foundation rather than make a direct gift. "If the family finds that the charity is not using the money the way they want it to, they could move the money to another charity," he notes.

One class of donor does seem comfortable with unrestricted gifts: entrepreneurs. Westminster College in Salt Lake City has an ongoing campaign to ask donors for unrestricted gifts for the President's Innovation Network fund, which would be used for research and development of new campus programs. Nancy Michalko, vice president of Advancement and Alumni Relations, finds that this appeals to donors who have started their own businesses. These folks understand the creative freedom that can come with unrestricted investments, because similar funds may have allowed them to launch.

Seeking Out Restricted Gifts

Westminster College welcomes restricted gifts, too. In January 2006, officials announced that the chairwoman of its Board of Trustees, Ginger Giovale, was donating $10 million toward a new science building, the largest gift in the institution's history. …

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