Gift agreements are vital to fundraising efforts. Agreements spell out the purpose of a gift and provide specifics about how the money can be used. By clearly stating the donor’s intent along with our organization’s policies and procedures, agreements help establish and manage donor expectations. A formalized gift agreement also illustrates how our organization values the donor’s gift, while also displaying our commitment to administering and stewarding the fund.
Gift agreements are essential when a donor wants to establish a fund or name a place, space, or program. Our organizations should all have a documented workflow for agreements, including a review process. The review process should include staff members involved with investing the fund (for endowments), spending the funding, stewarding the fund, and maintaining the donor relationship.
Involving these staff members ensures the agreement is accurate and complies with our organization's policies and procedures, and receives final sign-off from leadership. This is not an exhaustive staff list, as deferred gifts may require review by our planned giving teams, and legal counsel should be involved in crafting and approving standard language for policies and procedures.
So, what are the key components to include in gift agreements? Here is a list of our top 8 must-haves:
Standardized Language. We shouldn't have to draft each gift agreement from scratch. The best practice is to have templates or templated language for our organization's different types of agreements. For example, templates should exist for agreements or shells for funds that provide program support, endowed chairs or other staff positions, and award scholarships. We also need agreements for naming opportunities - be it a space, a place, or a program. Our standard language should be approved by our legal counsel. Best practice also includes an annual review of standardized language, and edits to reflect any policy change(s) at our organization.
Fund Purpose and Criteria for Use of Funds. The starting point for an agreement is to clearly state the donor’s intent for the gift's purpose and to expand upon that by listing the criteria for using the monies. Let’s pause here and talk about criteria. Criteria should be as concise as possible and limited or tiered according to the gift amount. For example, the criteria for awarding an endowed scholarship established by a gift of $100K is limited to an academic major or minor. In contrast, the awarding criteria for an endowed scholarship established with a gift of $1M can include geographic preference (i.e., out-of-state vs in-state) in addition to an academic major/minor.
Payment Plan. If the gift isn't received in full, the gift agreement should include a payment plan. There must also be language that addresses what happens if the payment plan isn't fulfilled. In most cases, organizations will state in the agreement that the funds received can roll into an existing fund with a purpose closely aligned with the donor's intent.
Administrative Policies. These are usually broad strokes about the monies being subject to our organization's current administrative policies. For endowments, there is also a section to address our general distribution policies, including when payouts begin.
Contingency Clause. A great example of a contingency clause addresses what would happen if the area (department, unit, academic major, for example) supported by the gift ceases to exist. Contingency clauses typically contain language that funding would be transferred to an area that most closely aligns with the original purpose of the gift.
Morality Clause. This is super important for named places and spaces and equally important for named funds, programs, etc. The idea of including a morality clause causes a lot of unnecessary angst, but it shouldn’t. A simple statement like this, crafted by our DRG founder, Lynne Wester, is sufficient: If at any time the donor or their name may compromise the public trust or the reputation of the institution, including acts of moral turpitude, the institution with the approval of the board of trustees has the right to remove the name or return the gift.
Life of the Naming. The life of the naming must be addressed in a naming agreement. Named endowed funds are designed to continue in perpetuity (assuming the morality clause is not evoked) but named places and spaces should not. For a named building, the naming should last for “the useful life of the building” or some other finite period. Add a term limit, such as 10 years, for a named college or unit.
Recognition and Reporting Requirements. We need to include the type of recognition the donor will receive in the agreement – and the types of reports they can expect to receive – but it is best practice to keep this as simple and clutter-free as possible. Do not commit to something that might not be sustainable in the future. Borrowing another great example from Lynne Wester, we can't commit to putting nameplates in library books in perpetuity when one considers how technology has affected libraries in recent years.
The bottom line is that well-crafted gift agreements set our organizations up for success. By correctly capturing donor intent and outlining our organization's policies and procedures, gift agreements help us establish and maintain healthy donor relations practices. The absence of gift agreements often leads to frustrated donors and unwanted headlines in the media, as seen with the renaming of Avery Fischer Hall at Lincoln Center, among many others.
So, how do your agreements measure up? We'd love to hear your success stories with formalizing agreements and any tips you'd like to share with others. Need more information on this topic? Check out our recent webinar on Development Officers & Donor Relations: Sustainable Gift Agreement Partnerships.
By Jan McGuire
