This article originally appeared in the July/August 2011 edition of the Museum magazine.
An excerpt from To Give and To Receive: A Handbook on Gifts and Donations for Museums and Donors, available from The AAM Press. Edited by Sharon Smith Theobald and Laurette E. McCarthy, with contributions by Amy McKune, Beth J. Parker Miller and Romy M. Vreeland.
Museums in the United States and the public they serve benefit immensely from the generosity of donors. The tax incentives available to those who give art, historic objects and many other types of collectible material to qualified not-for-profit institutions encourage this philanthropy. It is not an exaggeration to state that without the vital partnership between donors and museums, many museums in this country could not sustain their operations. -Sharon Smith Theobald and Laurette E. McCarthy
Obligations Of The Museum As Donee
With the benefits of charitable donation come mutual obligations for both donor and museum. Nonprofit museums must follow both ethical and legal requirements in their role as a charitable organization benefiting from, gifts. Museum industry best practices require museum staff and boards to consider key questions thoughtfully when deciding whether to accept a gift offer:
- Does the gift support the mission of the museum? Will it be useful for exhibition, educational or research purposes?
- Can the museum legally, ethically and effectively manage, document, care for and use the gift?
- Can valid and unencumbered title pass to the museum? Can the gift be acquired legally? Does the donor have clear title and the legal right to make the gift? What rights will be conveyed with the gift? Is the gift unrestricted? If restricted, do the restrictions permit the museum to make best use of the object now and in the future?
- Is the object authentic? What is the provenance of the gift?
Museum collections management policies and collecting plans should guide museum decisions regarding the acceptance of a gift offer. Collections policies and plans address these and other key topics:
- What collections does the museum hold?
- What kinds of objects does the museum collect?
- What decision-making process, including legal and ethical considerations, does the museum follow to accept gifts to collections?
It is imperative that museum personnel strive to follow all legal and ethical standards regarding accepting gifts for the collection. The first steps in complying with these standards are to understand the legal process in which you are engaged and to accurately and effectively communicate with donors. Having policies governing these gifts, and adhering to them, is crucial.
Title Transfer And The Museum’s Role
There are three legal requirements to complete a gift: the offer (expression of intent by the donor), the acceptance by the donee and the delivery (transfer of physical possession to the donee). The date of transfer is the date of acceptance or delivery, whichever occurs last. Documentation is a fourth important step, as the museum as the donee has the burden of proof to demonstrate that these requirements have been met. Thus, the museum must obtain and retain sufficient documentation of the transfer of title and completion of the gift.
- A donor must express intent to complete the gift, whether verbally, with a letter or e-mail communication, or through signature on a deed of gift.
- It is important at this stage of the gifting process for the museum and donor to begin discussing donor and museum intent, including use of the object, method of giving, restrictions, appraisal and tax deductions, and the museum’s process and timetable for internal review and acceptance.
- Written documentation of the donor’s offer should be maintained as part of the object’s donation record. A counter-signed deed of gift is the preferred instrument to demonstrate donor intent.
- The museum should formally accept a gift, and it is best practice to document this acceptance with a letter from the proper museum authority and a counter-signed deed of gift.
- A museum’s collections management policy typically addresses the process for review and acceptance of gift offers. A gift offer is commonly first entertain~d and evaluated at the curatorial level, with recommendations then forwarded for approval to a staff-level committee, the director or CEO and, if required by policy, the board-level collections committee and the full board of trustees. It is during this approval process that a museum should thoughtfully determine, justify and document its reasons for accepting a gift.
- The museum’s official acceptance date is determined by the institution’s collections policy and this should be applied consistently with all gifts. Some institutions consider th~ date of acceptance to be the date of the final step in their internal gift approval process, documented through meeting minutes or an internal gift approval form. Other institutions use the date of counter-signature on the deed of gift and/or letter of acceptance to the donor as the formal date of acceptance. Communication with the donor regarding the museum’s formal acceptance of the gift is best documented in writing and should be maintained as part of the object’s donation record.
- A museum as donee must take physical possession of the objects in order to complete the gift. Physical possession may be completed by an agent for the museum, such as a fine arts transportation or storage company. If the gift is a fractional interest donation, then under current law the museum must retain substantial possession of the object.
- Physical possession often precedes the acceptance, as museums frequently receive gift offers on temporary receipt so that staff may review and evaluate the objects before deciding whether to accept the donation.
Museums commonly document delivery through a receipt form, signed and dated by both parties (or their agents). These receipt documents should be maintained in the object’s donation record.
Museums and donors are best served when all steps of the gift process are documented in writing. Written documentation establishes completion dates necessary for donor tax purposes, helps prevent misunderstandings between donors and museums, and enables the museum to fully document title transfer in its records. Museums need to understand that the date of donation can affect when a donor secures an appraisal and when the donor may claim a deduction. A counter-signed deed of gift, or other legal gift agreement, is the most common and preferred method of documenting the completion of a gift. Deeds of gift should:
- include a full description of the donated objects
- confirm transfer of any rights that will pass with the objects
- note any restrictions placed on the use of the gift
- state whether any goods or services were exchanged for the gift, and
- be signed and dated by both donor and donee. To be fully tax-deductible, gifts should be made with no significant benefit to the donor.
Charitable Contributions Appraisals, Tax Advice And The Museum’s Role
Museum best practice guidelines strongly encourage museum staff and trustees to direct donors to seek independent tax and legal counsel related to their specific gift situation. However, this does not mean that staff should operate in a vacuum with no knowledge of law pertaining to charitable contributions. Museum staff should have some understanding of donor and donee obligations for appraisals, methods of giving and intended use of the gift.
Appraisals for tax purposes must be completed by a qualified appraiser as defined by the IRS. Neither museum staff nor the donor may complete an appraisal for a donation, as both are party to the transaction. Appraisals must be completed no earlier than 60 days prior to completion of the gift and no later than the due date (including any extensions) of the return. It is therefore incumbent on the museum to communicate the timeline for acceptance of the gift to a prospective donor.
Tax law applicable to fractional gifts as of 2011 requires the donor to have a new appraisal completed for each donation of additional fractions. Tax law also requires museums to take “substantial physical possession” of the gift and make a related use of the property. Museums must understand their obligations and should seek legal counsel when accepting fractional gifts.
Donors that elect to take a tax deduction for a charitable contribution must file IRS Form 8283. For gifts in total value over $5,000, the authorized museum representative must complete Part IV, Donor Acknowledgment on Side B of the form. The museum representative who signs the form must be authorized to sign the tax returns of the organization or must be specifically authorized to sign the 8283 form for the organization. This individual should have a clear understanding of what the donor gave, whether any restrictions were attached to the gift, whether full or partial interest in the gift was conveyed, and the intended use of the gift, in order to accurately complete and sign for the museum.
Whether a gift is accepted for a related or unrelated use impacts the extent of the tax deduction a donor may claim. Therefore museums must accurately state and convey to the donor the institution’s intended use of the gift. Gifts to be used for mission-related activities are usually considered “related” gifts. However, gifts of objects not related to the mission of the institution may be “unrelated.” Of note, the gift of objects to a museum for the institution to sell, even if the proceeds are to benefit the collections, is considered by the IRS to be “unrelated.”
Museums are stewards of collections held in trust for the public. When engaged in the charitable gifting process, museums are wise to be mindful of this role and to act not only legally but also ethically. Above all else, if ever you are asked to deviate from generally accepted practices, consult museum colleagues with a greater level of experience and/or legal counsel before proceeding.
Donation Process and Procedure Outline
By Romy M. Vreeland
It is important for institutions that accept gifts of property to have a written donation procedure outline available for their staff and for potential donors. The outline may incorporate the institution’s specific mission and collecting strategy, its policies for accepting donations of property, applicable IRS rules and other statutes that may have bearing on tax deductions and the transfer of title, and the types of donor recognition offered by the institution.
If a donor understands an institution’s gift acceptance policies and timeline (which may differ from that of other institutions a donor has dealt with), major problems can be avoided. Evidence of a clearly worded and thoughtfully prepared procedure will instill confidence in a donor and convey that the same institutional standards apply to all gifts of property to the institution.
Likewise, having a plainly worded procedure available to all staff who have a hand in soliciting donations of property (who may include an institution’s director, board members, development team, researchers, educators, as well as curators) will help the staff present a consistent and accurate message to donors, avoiding misunderstandings down the line when they are more difficult to correct. The procedure should be based on the policies contained in an institution’s collection management policy, bylaws or other governing documents. Having a document tailored to answer a donor’s questions about the giving process, and making certain that the document is in plain language, may be more helpful than presenting your governing documents to a potential donor.
The procedure should not take the place of a donor’s consultation with his or her own financial, legal or tax advisors. But it can help the donor open a discussion with his advisor, and can help the advisor better understand your institution’s own specific policies and motivations.
The following points should be considered by an institution as it crafts its donation procedure or revisits its donation acceptance process, and can guide a donor to ask the right questions of an institution that does not have a complete or accessible written policy. Note that the outline is meant to be just that: a simple statement of policy that can help guide decision-making, and not a comprehensive document that attempts to illustrate all possible gift transactions and potential issues.
- Introduce your institution’s mission and note the type and range of objects or other works your institution collects. Explain why donations are an important part of your collections-building strategy.
- Explain how a dialogue is opened about a potential gift. Note who in the organization normally makes the initial contact with a donor, and why.
- Outline the normal flow of paperwork when an offered gift is of interest to the institution, when the property considered for donation is expected to arrive at the institution and who in the institution will handle physical receipt of the property.
- If your institution has a policy on restrictive terms or on different types of giving, such as promised and partial interest gifts, explain that policy. It may be helpful to note that any gift other than an outright, unrestrjcted gift of property may reduce the level of the gift’s tax deductibility, and should be discussed with a financial advisor before proceeding. Likewise, you may wish to explain the concept of unrelated use and state your institution’s policy on accepting gifts for an unrelated use, such as sale at a fundraising auction.
- Explain the value of bequests and any special services or recognition your institution may offer for planned giving. Stress that planned gifts should be discussed with the donor’s legal and financial advisors.
- Note the ways in which your institution recognizes gifts of property, such as in credit lines, the annual report or newsletters, complimentary memberships, private tours or events, etc.
- Explain how your institution handles requests for appraisals and tax documentation, and what types of documents are automatically provided to the donor. It is an excellent idea to state that appraisals for tax purposes cannot be provided by a donee institution, under IRS rules.
- Include any links or references to helpful information pertinent to your donors, such as a special section of your website about gifts and fundraising, published information about past gifts accepted by your in~titution, or the names of useful IRS publications and forms. Include contact information for any person or department mentioned in your outline.
This is a guide to help you begin to think about the policies and procedures that are important to your donors. Your outline will vary depending on whether it will be used primarily for sharing with donors, for staff instruction, or both.