Donor-Restricted Gifts: Charity Beware!

Charity law and policy

Donor-Restricted Gifts: Charity Beware!

Authored by Nevena Urosevic

When can a charity redirect a gift made for a particular purpose?

A recent British Columbia Supreme Court case has reaffirmed the donor-restricted gift principle, as found in Chapter 10 of our Charities Handbook.[i]

Namely, in the matter of Re Mulgrave School Foundation[ii] (“Mulgrave”), the Foundation sought an order permitting it to apply two generous gifts initially made to support the Mulgrave School’s Scholarship Program (the “Scholarship Program”) toward the construction of the Mulgrave School’s Senior School Building Project (“Building Project”). The case sought to determine whether the charitable gift could be redirected to the Building Project despite the fact that it was originally donated for the Scholarship Program.

When the Foundation approached the donors asking them whether they would be willing to apply their earlier gifts (“Donated Funds”) towards the Building Project instead of towards the Scholarship Program, all of the donors agreed. Nonetheless, the Court found that the charity was not allowed to redirect the charitable gifts despite approval from the donors to that effect, as the conditions applicable at the time the gift was made continued to be applicable at the time of the request for redirection. The Court notes that “[t]he donors did not retain or reserve any legal rights in the Donated Funds, nor did they indicate any reservation of a right to suggest an alternative or additional use of the Donated Funds, by the Foundation at a later date”. [iii] Unless such retention or reservation of legal rights are explicitly set out at the time the donation is made, the donor has no further rights to, nor authority over, the funds.

The Court further stated that:

“Although the four donors have expressly consented to the repurposing of the Donated Funds to help fund the Senior School Construction, the Foundation cannot take direction from them or ignore the earlier Endowment Condition or the Purpose Condition. There is no legal mechanism by which they can release the Foundation from these conditions. Hence this application.”[iv]

The Court cites British Columbia’s Charitable Purposes Preservation Act[v] and notes that the conditions set out therein were not met. There is similar legislation across the province which sets out how changes can be made to charitable gifts directed for a particular purpose/fund. These can be summed up by the Court’s statement that under common law, “the court has the ability to direct a scheme or mechanism under the doctrine of the cy-près when a charitable purpose becomes impossible or impracticable to perform”.[vi] Essentially, this means that when a charitable purpose becomes impossible to fulfill, the court may agree that the gift in question be applied to a purpose very similar to the one originally intended.

This case stands for the proposition that if a charity and/or donor want(s) to change the terms of a gift made for a specific purpose, but has not made provision for such a change at the time of the donation, the charity will have to commence an application to the appropriate provincial Court. At the time of the Court application, even if all the parties are in agreement with the change, there is no assurance that the Court will approve of it.

Charities can, however, minimize the risk and accompanying frustration of gifts being locked in for a certain purpose despite the consent of all parties that the gift be redirected elsewhere. The best practice in this case is for a charity to have a donor restricted gift policy.  Such a policy should state that the funds are being accepted on the condition that they will be used for the specified purpose or project, unless that purpose or project has been completed, or for some reason cannot be completed, in which case the board may decide that the funds are to be used for another charitable activity. Without the donor agreeing to this condition at the time the gift is made, the charity may not be able to use the funds for a different purpose or project later on.

CCCC provides its members with a sample of a Donor Restricted Gift Policy at the following link: or in 19th Edition of the print version of the Charities Handbook at page 141.

[i] See pages 139-141 of the 19th Edition of the CCCC Charities Handbook.

[ii] 2014 BCSC 1900.

[iii] See paragraph 18 of Mulgrave.

[iv] See paragraph 22 of Mulgrave.

[v] S.B.C. 2004, c. 59 at s. 3(4).

[vi] See paragraph 25 of Mulgrave.

Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.

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