Somewhere in your nonprofit’s books probably sits a line item that makes the room a little worried when someone says its name out loud. Maybe it is called the Smith Fund. Maybe it is “Youth Outreach Restricted,” or “Building Fund 2017,” or a code only one former staff member ever loved. The balance is real, though the original purpose is foggy. The donor might have moved, the staff who knew the story have left, and the only paper trail is an old spreadsheet that offers very little comfort on a Tuesday morning when finance wants to know whether the money can finally move. If that scene sounds familiar, you’re in good company. Restricted donations for nonprofits show up in two common ways: one is the legacy balance that carries no explanation, and the other is the new incoming gift that arrives with an instruction or note directing the money somewhere other than the campaign you just ran, including to a program you do not operate. Restricted money of course is still a gift to the mission, but it also can become a long-running administrative project.
Before your organization redirects old funds or accepts a mismatched designation, confirm what the written record says, decide whether you can honor the purpose, document the decision, and use fundraising language that leaves room for flexibility if needed.
Start with the written record
A restriction can appear in more places than just a formal gift agreement. Before finance labels money unrestricted, review the documents that show what the organization and the donor each understood at the time of the gift. That documentation often includes donor letters, grant awards, check memos, solicitation pages, acknowledgment emails, board minutes, and any prior correspondence that mentions purpose or timing.
Your organization’s fundraising copy also can be important. Under the model rules many states have adapted for institutional funds, a gift instrument can include records and institutional solicitations, and multiple writings can work together to establish a gift’s terms. A campaign page that asks supporters to “fund a mobile clinic” might end up being dispositive.
When a restriction is uncertain, build a file before you move any money
Old restricted balances can be hard to reconstruct. Software systems change and staff leave. While these circumstances are common, treating the gift balance as general operating support simply because no one remembers the restriction should not be the default response.
It’s best to first create a short review file for each uncertain fund. Start by collecting the available records, and write down what the organization knows, what it can’t confirm, and every outreach attempt it has made to the donor or an authorized contact. Good practice includes notifying a living donor who can be located without unreasonable cost or effort.
If the donor can be reached, seek written agreement on a revised purpose that the organization can actually administer. If the donor cannot be reached, or the original purpose no longer works, elevate the issue through finance and leadership before anyone redirects the funds. Across much of the country, the law on institutional funds recognizes written donor consent as one path for modifying a restriction, and it also contemplates other paths that might involve courts or regulators when consent is unavailable. The details vary by state, so this is not a free-form judgment call by the organization.
Handle new gifts and campaign language before funds are received
The same discipline applies to gifts arriving in the present. If your solicitation asks donors to support Program A, and a donor tries to direct the gift to Program B or to a program that doesn’t exist at all (or work you don’t do), don’t just reclassify the gift and hope no one notices. Decide whether the organization can honor the designation as written, and either offer the donor a related existing purpose or return the gift.
That intake protects both the relationship and your organization. Accepting money on terms you can’t administer can create serious clean-up and lead to undesirable conversations with donors.
Disclaimers also can be helpful here. A flexibility statement on your campaign page, donation form, confirmation email, and major-gift materials can reserve your organization’s ability to apply gifts to the closest related charitable purpose if the project is fully funded, discontinued, or can’t proceed as planned. Bear in mind, though, that while a disclaimer can serve as a guardrail for future fundraising, it can’t erase a specific promise already made to a donor.
The disclaimer also should match the campaign’s actual message; a bold promise in the headline and a contradictory footnote at the bottom of the page make poor partners. If the solicitation sells a particular project, state what the project is and what happens if the plan changes. Consistency is more important than clever wording. You could try something like: If the project described above is fully funded, discontinued, or cannot proceed as planned, we may apply your gift to the closest related charitable purpose that advances our mission.
This blog contains general information, not legal advice. Reading it does not create an attorney-client relationship with Porter Legal PLLC. For advice about your situation, consult a licensed attorney.
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Good records protect donor trust and give your nonprofit more room to manage change without creating future headaches. Through Porter Legal, I partner with nonprofits that need outside general counsel support for gift acceptance practices, gift instruments, and restricted-fund clean-up. Reach out here to discuss 1:1 legal support.
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