Many high-net-worth individuals take part in long-term philanthropy, regularly donating money, time and assistance to charities, non-profits and organizations that are close to their heart. Often this generosity can develop and grow to the extent where an individual would like to make a major gift.
A significant financial gift can greatly accelerate the progress of the beneficiary, empowering the achievement of goals and targets far sooner than expected. However, passing on large financial sums is never a simple process. Indeed, making a large gift can be overwhelming, with a need for extensive planning via the involvement of accounting, legal and philanthropy experts.
Equally, recipients of such a gift may be anxious about receiving it, wanting the extensive sum of money to be put to the best use, and often requiring additional support throughout the process.
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What constitutes a major gift?
Major gifts come in countless different forms. Donations of large sums of money from ultra-high-net world individuals can make front page news, their generosity is often honored through the naming of a building, like a hospital wing.
It is important to remember that these exceptional donations make front page news due to their unusual nature. It could be suggested that what makes a gift “major” is actually more defined by its recipient. For example, a large financial gift to an established university will have a very different impact on that institution than a similarly sized financial gift to a human services organization.
Major gifts can also be gifts of talent and time. The style of donor varies hugely from someone with a large donation and zero time, to someone with a smaller donation but extensive time to offer.
Before investing it is vital to consider your motivation for giving. A substantial sum of money can have hugely positive effects on an organization, however, it can also bring some negatives which can often be unforeseen. Sometimes large monetary gifts can result in institutions becoming dependent on donations, hampering self-sufficiency.
What are your reasons for making a major gift?
Firstly, you should consider your motivation for giving. One way to consider this is to ask yourself, “Do you want to impact an organization or invest in an organization’s impact in the world?”
Other reasons could be strengthening a beloved institution, creating your own legacy, and serving as a source of inspiration for others to give more generously. Each is equally valid however, it is important to understand your motivation for giving.
You should also consider the timeframe of your gift. Some people make large gifts all in one go, others stretch them out over a longer period of time. If the latter, you should consider what should happen in the unfortunate case of the donor’s death. Many organizations will want to ensure heirs and estates will step into the donor’s shoes and fully satisfy the remainder of the gift.
This adds the complex but vital need to discuss the donation with family members who may have to take up a role such as receiving progress reports and confirming the targets of the organization — something they may have no interest in doing.
What is your relationship to the organization? Often those wanting to donate to a non-profit have a strong and positive relationship with said group, however, a major donation can test the strength of that relationship. Major gifts often come paired with targets and legal agreements which can add pressure to a positive relationship.
How does one decide between different types of major gifts?
There are many different kinds of gifts, vehicles through which the gift is made and different variations of restrictions a donor may place on a gift. Due to this the act of making a major gift can become complicated for both donor and recipient very quickly.
It is suggested that there are four different kinds of major gift uses in a non-profit organization: program, capital, operations and endowment. These types are not mutually exclusive, and a major gift is often made up of a combination of several or all of these styles.
It is important to consider what type of gift will be more beneficial to a non-profit organization. A gift that is liquid and unrestricted will provide the greatest level of flexibility and thus the lowest risk and cost. The opposite would be a gift that lacks flexibility such as a permanently restricted fixed asset, like real estate, which cannot be sold or developed and has high associated maintenance costs.
The same can be said for gifts like art, where although of substantial worth, the recipient may not possess the knowledge or experience to utilize the donation effectively.
What are the legal and financial considerations associated with making a major gift?
When donating a major gift there are several important considerations you must address, from tax deductibility to accounting, legal concerns, publicity and naming rights. Due to the complexity of these issues, the best policy is to seek specific advice from a professional in each specific area.
The size of the gift and its recipient also affect things. If a donation is large enough, it might transform a public charity into a private foundation. This could be avoided by spreading your donation over a number of years.
When looking at legal considerations, one of the most important elements is having a written agreement that is associated with the gift. Clearly describing gift conditions in a way that is not open to interpretation will help to avoid confusion and in a worst-case scenario, allow you to enforce the terms of the gift in court.
While the process of making a major gift can be one of the most immensely rewarding things an individual ever does with their wealth, carefully considering key questions can help to avoid hiccups and ensure the process runs as smoothly as possible.
The Goldman Sachs Philanthropy Fund acknowledges the author of this article, Melinda T. Tuan, an independent philanthropic consultant.
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