This article explores one type of “designated” donations a nonprofit charitable organization may receive and explains the rights and responsibilities of both the donor and the charitable organization with respect to each. A frequently asked question is whether someone can make a donation for the purpose of benefiting a specific individual?
Gifts to Designated Individuals
If a donor approaches your charity and offers to make a contribution for the purpose of defraying the medical expenses about to be incurred by a specific individual (family member or otherwise), can your charity accept that donation?
The analysis must begin with understanding the purpose of the charitable organization. If the purpose of the charitable organization is totally unrelated to helping families in need, then it may not accept a donation so designated. The charity must use all of its assets to benefit the purposes for which it was organized. As an example, if the charity’s purpose is to provide residential care for developmentally disabled individuals, contributions designated to help a specific individual defray medical costs would not be consistent with that purpose. Therefore, the donation could not be accepted.
If, however, the charitable organization was formed for the purpose of assisting families in need, then the proposed donation would be at least consistent with that purpose. Although the donor could give money directly to the family to defer the medical costs, that gift would not be a charitable contribution. However, if the money is given to a charitable organization whose purpose is to assist families in need, a charitable deduction may be available. If the donation was given for the general purpose of assisting families in need, the donation could be accepted and the donor would be entitled to take a charitable deduction.
Hand holding a jar of heart tree growing on money coins, social responsibility and donation concept
In this case, however, the donor has identified a specific individual who is to benefit from the donation. While donors can request how donated funds may be used, they may not require the funds to be used for the benefit of a specific person. To be a valid donation, the charity must be totally free to determine whether the designated family truly needs the type of assistance being offered and whether assisting the family is the best use of the donated funds. If there are several families in similar circumstances, the charity must have the ability to freely decide which family or families should benefit from the donation.
For further information regarding any non-profit needs, please contact Sandro DiMercurio at (248) 645-9680 or sdimercurio@berrymoorman.com, or a member of Berry Moorman’s Nonprofit Group.
