Key considerations for gift agreements

It is not necessary to have a gift agreement in order to make a gift. However, it is important for charitable gifts and charitable pledges made by donors to charities be documented. A gift agreement provides evidence that a gift has or will be made and can help avoid confusion in the future as to whether a gift has been made and the terms of that gift. A pledge agreement is an agreement that records a commitment by a donor to make a gift at a future time. Documentation of charitable pledges will be particularly important when the registered charity is relying on the satisfaction of the charitable pledge in order to begin or continue a project or engage in or continue  research. Charities of a certain size that receive gifts on an ongoing basis will likely draw up standard gift agreements in order to streamline administrative processes. While such documentation does not need to be lengthy or complex, it is advisable that it contain certain provisions to ensure the relationship between the donor and the charity and any restrictions associated with the gift are appropriately documented.

The following is a non-exhaustive list of provisions that are found in standard gift agreements:

1. Identification of the parties: The donor or donors should be identified. The charity should also be clearly identified by proper names. This is particularly important in situations where there are several charities with similar names. The charitable business number can be included.
2. Identification of the gift property:  Clarity regarding the property to be gifted is very important especially if the gift is comprised of non-liquid assets or represents a portion of the estate in the case of a testamentary gift.
3. Identification of charitable purpose: It is important when dealing with restricted gifts that there is sufficient clarity whether a charitable purpose trust is created that creates legally binding obligations or whether the terms of the gift are simply precatory and not meant to have any legal effect.
4. If the gift is being made for a specific charitable purpose then this designated purpose should be clearly described in the gift agreement. It is important that the purpose described be charitable at law, fall within the formal charitable purposes of the registered charity, and be acceptable to the registered charity. It is important that the gift agreement provide for what is to happen in the event that the specified restricted charitable purpose becomes impossible or impractical to carry out for any reason. Often the donor and the charity will agree that in such a circumstance the charity shall have the power to vary the terms of the charitable purpose as near as possible to the original charitable purpose of the gift. The charity may agree to consult with but not take direction from the donor or the donors representative or appointee.
5. If the donor is to be consulted, consideration should be given to whether this consultative process is to cease on the death of the donor or if family members are to replace the donor if the donor is not able to be consulted. If more than one family member is selected, then a process for determining one representative to interact with the charity would be prudent.
6. The gift agreement should clarify if in making distributions from the fund, income  only is to be available and not capital. For such purposes income means interest and dividends, and does not include capital gains. Restricting the expenditure of funds to income only has proved problematic for charities especially during times when interest rates are low and could adversely affect the ability of a charity to meet its disbursement quota and also affect the investment decisions of charities. Consideration should be given to providing instead for disbursement of funds based on a percentage of the value of the fund without referring to income or capital and potentially allow for more flexible spending if appropriate and desired by the parties. Often charities will have disbursement policies and investment policies that can be referred to and included in gift agreements as appendices.
7. Consideration should also be given to providing in the gift agreement that the charity has the ability to transfer the fund to another registered charity on condition that the recipient charity hold the funds on the same terms and conditions as those set out between the donor and original charity. This provision is helpful if the charity merges with another charity or winds up and wishes to transfer its funds to another charity in the process of winding up.
8. Reporting to and recognition of the donor should also be set out in the gift agreement so that disputes do not arise in the future with respect to the content, scope or duration of such recognition.
9. If the gift agreement evidences a pledge to make a charitable gift, it is important for both the charity and the donor that these pledges are set out in writing to ensure both parties are aware of the specific terms up on which the pledge is being made. The question of whether  a pledge to make a gift is enforceable raises complex issues  but there is some law to the effect that a pledge agreement may be valid if made under seal. Other types of pledges may be enforceable on the basis on the specific terms of the arrangement. Clearly having a written agreement is at a minimum evidence of intention of the donor to make a gift.