Best Practices for Crafting Gift Agreements in 2026 and Beyond
Donors' generosity and the impact their contributions have on our organizations is what our work is all about. We spend countless hours acknowledging gifts, thanking donors, reporting on fund activity, and coming up with creative ways to engage and retain our donors. Those activities are all part of one large production that is fundraising, but behind the scenes, there is a key player: the gift agreement.
Gift agreements play a critical role for nonprofits, educational institutions, and donors. They are the essential legal and administrative documents that clarify and confirm the donor’s intent for the gift, how the funds can be used, how the funds may be administered, and address important issues such as investment policy, governance, and contingency clauses. And for endowments, they are the roadmap for future staff members at our organizations to follow.
So let’s take a closer look at what agreements are, what they should include and what they should help to accomplish.
What is a gift agreement?
A gift agreement is a formal, written contract between a donor and a recipient organization. Your organization may refer to an agreement as the MOU (memorandum of understanding) or LOI (letter of intent). Each agreement outlines the terms and conditions of a charitable gift, such as the purpose of the donation, how the funds will be managed, reporting requirements, and any restrictions or expectations set by the donor. Gift agreements help:
Clarify donor intentions
Set expectations for both parties
Provide legal protection
Prevent misunderstandings or disputes
Why Are Gift Agreements Necessary?
At their core, gift agreements provide clarity and protection for both the donor and the recipient. They document the donor’s expectations and the recipient’s obligations. Without a clear agreement, misunderstandings can arise, potentially leading to legal disputes, reputational damage, or the misapplication of funds. With significant gifts—especially those involving endowments, scholarships, or capital campaigns—the stakes are high, and clear documentation is vital.
Gift agreements also give donors peace of mind by ensuring their charitable intent is honored now and in the future. For recipient organizations, these agreements provide a roadmap for managing the gift and reporting back to the donor. Ultimately, agreements enhance trust and accountability.
What Does a Gift Agreement Include?
A well-drafted gift agreement should address several key areas:
Donor’s Intent or the Purpose of the Gift: This is the heart of the agreement. It specifies the gift's purpose, whether it is for a scholarship, building project, research fund, or another use. Clearly articulating and capturing the donor’s goals helps ensure the gift is used as intended.
Use of Funds, Restrictions and Flexibility: An agreement should outline precisely how the funds can be used. When completed, the document should answer questions such as are there restrictions? Is the gift to be used for a specific project, or can it be allocated to general operating expenses? The use of funds portion of the agreement removes ambiguity and sets clear boundaries. That said, it is often beneficial to include “implied allowability” language to give flexibility in times of uncertainty or times in change. Think of phrasing such as “expenses may include but are not limited to.”
Administration of Funds: Who will oversee the administration of the gift? Will a special committee oversee it, or will an existing office take responsibility? When done correctly, this section of the agreement should specify processes for disbursement and oversight.
Stewardship and Reporting: Be sure to outline what reports or updates the donor will receive, and how the organization will demonstrate accountability and transparency in your agreement.
Investment Policy: For gifts that are endowed or otherwise invested, the agreement may reference the organization’s investment policies or set forth special instructions. This ensures the donor is aware of the organization’s financial practices and aids in transparency.
Contingency Clauses: We all know circumstances change over time. What happens if the original purpose of the gift becomes impossible or impractical to fulfill? Contingency clauses outline the process for repurposing the gift in a way that honors the donor’s original intent as closely as possible.
Compliance with Laws and Regulations: Includes assurances that the organization will comply with all applicable federal and state laws, including those related to tax, privacy, and nonprofit governance. You don’t have to specify specific laws, but rather the agreement will be administered in accordance with relevant state and federal laws.
Confidentiality and Public Recognition: Thorough gifts agreements acknowledge whether the donor wishes to remain anonymous or receive public recognition. P.S. be sure this information is clearly noted in your CRM for awareness across your organization!
Morality Clause: This point often makes fundraisers and others uncomfortable to confront, but it is vital to include in agreements for named places, spaces and programs. And the clause doesn’t have to be overly complex. We’ve reached back into our archives for this example from DRG Founder, Lynne Wester: If at any time the donor or their name may compromise the public trust or the reputation of the institution, including acts of moral turpitude, the institution with the approval of the board of trustees has the right to remove the name or return the gift.
Why Does Documenting Donor Intent Matter?
At the heart of any philanthropic relationship is trust. Donors want assurance that their contributions will make an impact in ways that align with their values and wishes. For donors, a gift agreement is more than a formality—it helps ensure their generosity has the desired impact.
For organizations, honoring donor intent is not only an ethical obligation but also a matter of legal compliance and reputation management.
Documenting donor intent provides some key benefits:
Clarity: It spells out exactly what the donor hopes to achieve, reducing ambiguity.
Continuity: Staff and leadership may change, but a written agreement ensures that institutional memory remains intact.
Protection: In cases of legal challenge, a documented agreement can serve as evidence of the donor’s wishes.
Transparency: Donors and organizations alike benefit from clear communication, which builds trust and fosters long-term relationships.
How Do Gift Agreements Benefit Organizations?
Recipient organizations also gain significant advantages from gift agreements:
Operational Guidance: Clear documentation means staff know exactly how to handle the funds.
Risk Management: Reduces the likelihood of disputes or misunderstandings with donors or their heirs.
Stewardship: Enables organizations to demonstrate good stewardship of donor funds, which can encourage future giving.
Flexibility: Well-drafted contingency clauses allow organizations to adapt to changing circumstances without violating donor intent.
Best Practices for Crafting Gift Agreements in 2026 and Beyond
Involve Legal Counsel: Ensure agreements are reviewed by legal experts familiar with nonprofit law and the latest federal regulations. Review templated or standard gift agreement language to ensure the agreement is clear, enforceable, and meets all regulatory requirements. This review shouldn’t be necessary for every donor document (see below for more on who should review each agreement). A review of standard language should be scheduled on an annual basis at least. And of course, be sure to involve legal counsel in special circumstances that may arise between review periods.
Review Organizational Policies: Ensure that the agreement does not conflict with existing policies or procedures.
Be Specific but Flexible, and Plan for the Future: Avoid vague language, but do include provisions that allow for future changes in law or organizational circumstances.
Emphasize Communication: The best agreements come from honest, transparent conversations between donors and organizations. Keep donors updated on the impact of their gifts, and promptly inform them of any organizational or policy changes that could affect how their fund is used or the fulfillment of their intended purpose.
Review Regularly: As regulations evolve, periodically review and update existing gift agreements to maintain compliance.
Educate Staff and Board Members: Make sure everyone involved in fundraising understands the importance of gift agreements and the nuances of current regulations.
Involve the Correct Partners: Have designated staff positions involved in reviewing and approving gift agreements, particularly complex ones. Is it an estate gift? Involve your gift planning team in the review. A scholarship? Involve your financial aid/scholarship office. Be sure to have a designated staff member in each area of expertise to contact and be sure they understand what is expected of them.
In closing, remember that gift agreements are more than just paperwork; they are a powerful tool for preserving donor intent, ensuring legal compliance, and building lasting partnerships. In an era of heightened federal scrutiny and evolving philanthropic practices, organizations must pay close attention to the structure and content of their gift agreements. By doing so, they not only protect themselves but also honor the generosity and vision of their donors—today and well into the future.
Take a Closer Look at Gift Agreements in 2027
Want to dig deeper into gift agreements and other challenges you face in donor relations? Our new 2027 Lock & Key Webinar Series covers 12 common donor relations challenges throughout the year, with two webinars dedicated to each topic. The first focuses on strategy, and the second shows you how to put what you've learned into practice.
