Designated, Undesignated, and Endowment Giving

When given to an organization, you can designate or restrict how those funds are used. For example, if the organization has many programs, you may designate your funds for a specific program. If you give through United Way you can list specific organizations to receive your funds or specify ways your funds cannot be used. Absent instructions on your part donations are considered unrestricted. I’ll be using the terms designated and restricted interchangeably in this lecture. Some donation restrictions might disqualify the donation for being eligible for a tax deduction. You can’t deduct the donation if you maintain too much control over how the funds are used. For example, restricting the donation for the benefit of a specific person, especially a family member can disallow a tax deduction. You can designate it for a class of people, for example, children needing funds for education or homeless individuals, even if you know of specific beneficiaries of your donations. The organization must retain the right of who exactly will receive the donations. This means don’t For Child sponsorship programs and similar programs are still tax deductible since the organization retains ultimate control of the funds and the beneficiaries are a class of eligible recipients. designating donations is popular because donors know that the full amount of their gift is used entirely for a purpose they support the most. Here are some reasons you may decide to give an under designated donation. restricted donations require more tracking by the receiving organizations. Some people promote restricted giving by claiming it increases efficiency, but restricted giving can also cause increased record keeping costs for the organization. unrestricted donations give the organization greater flexibility on how best to use those dollars. I’ve worked at nonprofits where we received grants that didn’t cover the administrative costs of running the programs the grant funded, unrestricted funds allowed us to cover those costs on designated funds can be used for newer programs or pilot programs that grant funding doesn’t cover. One consideration of whether to give a restricted donation as Whether you strongly support just one aspect of an organization, or whether you want to provide the maximum benefit for an organization whose mission you believe in, designated funds give you assurance of how your funds are used, but other costs of the organization must be covered by someone, including the programs you support to exist. If you designate funds because you don’t trust how the funds might be used, maybe you’re supporting the wrong organization, or you need to build more trust in the organization. And designated gifts give the maximum benefit and flexibility to the whole organization and its mission. A common reason people consider a restricted gift is they want to give a large gift they want the organization use over a long period of time. An excellent choice for these types of gifts is an endowment. Many larger organizations form endowments. endowments are usually structured so that the amounts received from the donor is called the corpus isn’t used by the organization. earnings from those donations can be added to the corpus to allow it to grow or be distributed by the endowment For a specific set of uses outlined in the endowment founding the endowments founding documents. This growing corpus is a pool of investment funds that creates a steady stream of investment earnings that can be used by the organization over a long period of time.