{"id":41946,"date":"2025-11-27T14:54:35","date_gmt":"2025-11-27T19:54:35","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=41946"},"modified":"2025-11-27T14:54:36","modified_gmt":"2025-11-27T19:54:36","slug":"the-hidden-legal-risks-behind-restricted-donations-what-every-non-profit-needs-to-know","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/social-impact\/the-hidden-legal-risks-behind-restricted-donations-what-every-non-profit-needs-to-know\/","title":{"rendered":"The hidden legal risks behind restricted donations: What every non-profit needs to know"},"content":{"rendered":"\n<p>Many non-profits and charities rely on donations to achieve their mission, but what happens when a donor specifies how their gift must be used? At first glance, such \u201crestricted gifts\u201d seem straightforward. In practice, they can expose organizations to complex legal obligations and even risk invalidating the donation if the stated purpose falls outside what\u2019s legally permissible. This is especially important for organizations that are not registered charities, as they may lack the legal framework to manage such restricted-purpose funds.<\/p>\n\n\n\n<p>These conditions, whether attached to a gift in a will or to a donation made during life, can create serious compliance and operational challenges. Understanding these nuances can help your organization protect both your mission and your donor relationships.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is a \u201crestricted-purpose gift?\u201d<\/h2>\n\n\n\n<p>A restricted-purpose gift is a donation made with instructions on how it must be used. The law will likely treat such a gift as creating a trust. This means the recipient has a legal obligation to use the gift for the intended purpose. However, a purpose trust is only valid under common law if it has a charitable purpose or one of the few valid non-charitable purposes (e.g., trusts for maintaining graves or monuments or for specific animals). The charitable purposes are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>relief of poverty,<\/li>\n\n\n\n<li>advancement of education,<\/li>\n\n\n\n<li>advancement of religion, or<\/li>\n\n\n\n<li>such other purposes that are beneficial to the public that the law has recognized as charitable.<\/li>\n<\/ul>\n\n\n\n<p>If a trust is for another purpose, it is typically invalid and void. In such cases, the gift would revert back to the donor or, if they are deceased, to their estate.<\/p>\n\n\n\n<p><strong>Tip:<\/strong> Always review donor agreements carefully. Even well-intentioned wording can inadvertently create an unenforceable or non-charitable trust.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Can non-profit organizations accept restricted gifts?<\/h2>\n\n\n\n<p>It is more likely that a non-profit organization would run into this issue than a charity. Unlike charities, non-profit organizations are not organized exclusively for charitable purposes. For a charity, if the gift falls within the charity\u2019s charitable purposes, the gift is very likely for a charitable purpose. It is also possible that a gift to a non-profit organization could be imposed with a charitable purpose. The issue depends on whether the donor has imposed an invalid purpose on the gift not on the non-profit status of the organization.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Are there exceptions or legislative workarounds?<\/h2>\n\n\n\n<p>A number of provinces and the territories have adopted legislation that modifies the common law approach to non-charitable purpose trusts. In British Columbia, the <a href=\"https:\/\/www.bclaws.gov.bc.ca\/civix\/document\/id\/complete\/statreg\/96358_01\"><em>Perpetuity Act<\/em><\/a> treats non-charitable purpose trusts as a power rather than a trust, which makes them valid for a period of 21 years. This essentially allows what otherwise would be an invalid non-charitable purpose trust to exist for a temporary period. The <em>Perpetuity Act<\/em> provides that a trust or gift for a non-charitable purpose will be valid so long as the funds are applied to that purpose within 21 years from the creation of the trust. After that period, the recipient\u2019s power to use the gifted property expires, and any remaining property must be distributed as though the trust had never existed. In the case of a gift made under a will, this would mean any remaining property would revert to the donor\u2019s estate to be distributed either under the terms of the donor\u2019s will or by intestacy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Five questions every non-profit should ask before accepting a restricted gift<\/h2>\n\n\n\n<p>Whenever your organization is considering accepting a gift that the donor wants you to use in a particular way, you should consider the following:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Is the donor requiring your organization to use the gift in a particular way, or are they only expressing a (non-binding) wish about how the gift may be used?<\/li>\n\n\n\n<li>Are the requirements on how to use the gift within the scope of your organization\u2019s purposes?<\/li>\n\n\n\n<li>Can you meet the obligations the donor is imposing on the gift?<\/li>\n\n\n\n<li>If you cannot use the gift for the donor\u2019s intended purpose, does the gift agreement or the donor\u2019s will allow you to use it for another purpose?<\/li>\n\n\n\n<li>If the gift is for a non-charitable purpose, is there applicable legislation that allows you to receive the gift? If so, will you be able to use the gift within 21 years?<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">How to protect your organization and your donors<\/h2>\n\n\n\n<p>It is important to have discussions with donors about their expectations, what you are able to achieve, and what gifts you are willing to accept. This will assist your organization in being able to fulfill the conditions on gifts, and also assist donors with achieving their intentions.<\/p>\n\n\n\n<p>This is particularly important with gifts made by donors under their wills, as it is generally not possible to amend the terms of the gift, and it would be unfortunate if the donor\u2019s intention to make a gift to the organization is not achieved because the organization has to decline the gift or if the property has to revert back to their estate because the gift is invalid at common law.&nbsp;<\/p>\n\n\n\n<p>If you have questions about gifts that you are receiving, including whether you should accept them or how you can administer them, our <a href=\"https:\/\/www.millerthomson.com\/en\/industries\/charity-not-for-profit\/\">Charities and Not-For-Profit<\/a> Group is able to assist with answering your questions.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many non-profits and charities rely on donations to achieve their mission, but what happens when a donor specifies how their gift must be used? At first glance, such \u201crestricted gifts\u201d seem straightforward. In practice, they can expose organizations to complex legal obligations and even risk invalidating the donation if the stated purpose falls outside what\u2019s [&hellip;]<\/p>\n","protected":false},"author":122,"featured_media":14389,"parent":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[535],"insight-format":[416],"class_list":["post-41946","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-social-impact"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The hidden legal risks behind restricted donations: What every non-profit needs to know | Miller Thomson<\/title>\n<meta name=\"description\" content=\"Learn how restricted-purpose gifts create legal obligations for charities and non-profits, when they may be invalid, and what to consider 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