The University of North Dakota Foundation (the “Foundation”) is organized as a North Dakota nonprofit corporation , is exempted from federal income tax liability by Internal Revenue Code Section 501(c)(3), and qualifies as a public charity under Internal Revenue Code Section 509. The Foundation exists to secure and manage private gifts for the benefit of the University of North Dakota (the “University”).
This document has been developed to outline procedures for analyzing and accepting charitable gifts to the Foundation for the University’s benefit. While the procedures set forth herein are detailed and often specific to the type of gift contemplated, they shall be interpreted within the context of three overriding principles:
Principle 1: A gift shall not be accepted by the Foundation if such acceptance would not be in the interest of the donor. A determination of the donor’s “interest” shall include, but not be limited to, the donor’s financial situation and philanthropic interests, as well as any tax or other legal matters revealed while planning for a gift. The Foundation shall not encourage any gifts that are inappropriate in light of the donor’s personal or financial situation.
Principle 2: A gift shall not be accepted by the Foundation unless there is a reasonable expectation that acceptance of the gift will benefit the University.
Principle 3: Gifts that potentially expose the Foundation or University to adverse publicity or involve out of the ordinary conditions shall be referred to the Governance Committee for resolution. The Foundation cannot accept gifts for the benefit of the University which involve unlawful discrimination on any basis prohibited by federal, state, and local laws and regulations. In addition, the Foundation cannot accept gifts which obligate it or the University to violate any other applicable law or regulation, or that violate the Foundation’s articles of incorporation or bylaws.
While this document is intended to provide guidance regarding acceptance of prospective gifts, donors are ultimately responsible for ensuring that the proposed gift furthers their charitable, financial and estate planning goals. Therefore, each prospective donor is urged to seek the advice of independent legal counsel in the gift planning process. It is within the province of neither the Foundation nor its staff to give legal, accounting, tax or other advice to prospective donors.
A gift is consideration given for which the donor receives no direct benefit and requires nothing in exchange beyond an assurance that the intent of the contribution will be honored.
In addition, gifts can be made in which some benefits are received in return by the donor, e.g., memberships in the Fighting Sioux Club. These gifts are characterized as quid pro quo gifts. In these circumstances, the Foundation shall make a good faith effort to provide the donor with the amount of the payment to the Foundation which is a legitimate charitable contribution deduction under the Internal Revenue Service regulations.
It is the responsibility of the Foundation Board of Directors (the Board) to accept or decline all gifts to the Foundation. The Board of Directors has authorized the Executive Vice President (EVP) to implement this policy. In addition, when in the judgment of the EVP it is determined that extraordinary circumstances are involved, the Governance Committee may be convened to discuss and approve certain proposed gifts to the Foundation.
Gifts which may be deemed by the EVP to have more significant risk include:
- Non-publicly traded securities with a Fair Market Value equal to or exceeding $10,000
- Gifts of real property
- Gifts of personal property with a Fair Market Value equal to or exceeding $10,000 if not to be used by the University (Convert to “unrelated use”)
- Conditional pledges
- Gifts of real or tangible personal property subject to donor restrictions regarding the disposal of such property
- Gifts of unusual items or gifts of questionable value
- Gifts involving interest in a business entity or one which creates liability exposure for the Foundation
- Intellectual property
- Oil, gas and mineral interests
- Other gifts deemed by the EVP to have significant risk
Gifts which may be deemed by the EVP to have moderate risk include:
- Non-publicly traded securities with a Fair Market Value of less than $10,000
- Charitable gift annuities
- Charitable remainder trusts
- Gifts of insurance
- Life estates
- Gifts of personal property with a Fair Market Value of greater than $10,000 used by the University (related use)
- Cash gifts with significant donor restrictions
- Other gifts deemed by the EVP to have moderate risk.
The Governance Committee shall have responsibility for reviewing gifts of significant risk or where unusual circumstances exist.
Gift Acceptance issues shall be addressed by the Governance Committee no less than annually and special meetings shall be called as necessary to approve specific gifts. The EVP is given the authority to administer this policy except in extraordinary situations where this committee can be convened.
Where deemed necessary or desirable by the Governance Committee, certain proposed gifts may be forwarded to the combined Executive Committee of the AAUND and the Foundation for review and decision.
The Foundation shall seek the advice of legal counsel in matters relating to acceptance of gifts when appropriate. Such use is recommended for:
- Transfers of closely-held business interests or other assets subject to restrictions or buy-sell agreements.
- Gifts involving bargain sale arrangements.
- Transactions where the appearance of conflict of interest may exist.
- Other instances of significant risk as deemed appropriate by the EVP or the Governance Committee.
Gifts to the Foundation may be in the form of outright gifts, pledges or deferred commitments.
Outright gifts include:
- Cash and Cash Equivalents
- Securities
- Real Property
- Personal Property
Cash and Cash Equivalents
Cash is often the easiest way to give and the most frequently received form of gift accepted by the Foundation. These gifts can take the form of currency, check or credit card contribution. Cash may be delivered in person, by mail, by Electronic Funds Transfer (EFT) or by wire transfer.
Cash gifts are reported the date the cash is received in the Foundation mailroom. If gifts are transferred by EFT or wire, the date of the gift is the date that the money is transferred into the Foundation’s bank account. Credit Card gifts (MasterCard, Visa, and Discover) are also accepted by the Foundation. When gifts are received by credit card, the date of the gift is the date the credit card charges are processed.
Securities
Gifts of securities are valued at the average of the high and low price of the security as of the date of the gift.
The date of the gift is defined as the date of the postmark on the envelope or the date the security is hand delivered (physical certificates) including a duly endorsed assignment of the security or the date the stock is received in the Foundation’s brokerage account (book-held securities). If the security is not traded on that date, the date of the most recent prior sale will be used for valuation.
Publicly traded securities (stocks, bonds and mutual funds) will be accepted by the Foundation. It is the policy of the Foundation to sell these donated securities upon receipt with the proceeds added to either the Foundation’s short-term funds or its investment portfolio.
In the case of non-publicly traded (closely held) securities; the Foundation shall examine any issue that is not publicly traded prior to acceptance as a gift and may decline a gift of such securities if it deems them difficult to value or not easily marketable.
It is the donor’s responsibility, for gifts of non-publicly traded securities exceeding $10,000, to have the securities valued by a qualified independent appraiser as required by the Internal Revenue Service.
Gifts of non-publicly traded securities of $10,000 or less may be valued at the per-share cash purchase price of the most recent transaction. Normally, this transaction is the redemption of the ownership interest by the closely-held business interest. For a gift of $10,000 or less, when no redemption has occurred during the reporting period, an independent certified public accountant (CPA) who maintains the books for the closely- held business entity or one who has provided professional advice to the business entity over the last year is deemed to be qualified to value the gift of the nonpublicly traded security. Donors may make gifts of interests in business entities (partnership interests, S Corporations, interests in limited liability companies). These may be accepted by the Foundation so long as the Foundation assumes no legal liability in receiving them. In evaluating a gift proposal of such assets, management may consider the probability of conversion to a liquid asset within a reasonable period of time, projected income that will be available for distribution and administrative fees, and the nature of the business from which the asset is derived. The Foundation may decline acceptance of any such gift.
The Foundation shall not accept, without Governance Committee approval, a gift making it a principal in a joint venture or other business activity in which it would participate in the risks of operation or would have any liability for the conduct of the business that exceeds its capital contributions. (e.g., as a general partner, principal in a joint venture, or as a owner of a working interest).
Real Property
Real property includes improved or unimproved land, personal residences, farmland, commercial property, rental property and mineral interests. It is the Foundation’s policy to dispose of all gifts of real estate as expeditiously as possible. This policy will be communicated to donors when the Foundation receives notification of the donor’s intent to gift real property. If it is the intention of the donor that the Foundation not immediately dispose of real property, an agreement must be made in writing between the Foundation and the donor before such property may be accepted by the Foundation.
The donor of real property should talk with his/her attorney about any possible charitable deduction before making the decision to donate the property. Management will accept a gift of real property only after a thorough examination of the criteria listed below:
- Market Value and Marketability. Management must receive a current appraisal (not older than 60 days) of the fair market value of the property and interest in the property the Foundation would receive if the proposed gift were approved. Development officers shall inform the donor that, if the gift is completed, the IRS will require an appraisal made within sixty days of the date of gift. The appraisal and other information must indicate clearly and convincingly that there is a market for the property under consideration and that the property can be sold within a reasonable period of time. Regardless of the value placed on the property by the donor’s appraisal, the Foundation will attempt to sell at a reasonable price reflected by the current market.
- Potential Environmental Risks. If, in the judgment of the EVP, the property could contain potential environmental problems, the donor would be required to provide a guarantee that the property is free from any and all environmental hazards. This provision could require that the donor provide a Phase I environmental impact study at the donor’s expense. At its discretion, the Foundation may also contract for an independent assessment of environmental risks at the donor’s expense given these circumstances.
- Limitations and Encumbrances. No gift of real estate may be accepted until all mortgages, deeds of trust, liens and other encumbrances have been discharged.
- Carrying Costs. The existence and amount of any carrying costs, such as property owner’s association dues, transfer charges, taxes and insurance, must be disclosed.
Gifts of real property qualifying for a charitable deduction to the donor shall be valued by using the fair market value of the property as determined by a qualified appraisal. Appraisals are generally provided and paid for by the donor.
The execution and delivery of a warranty deed or other appropriate conveyance shall complete the gift. The donor shall pay the costs associated with the conveyance and delivery of the gift. Quit Claim deeds shall not be accepted to convey title. Rather, a warranty deed shall be the required conveyance.
If the Foundation should sell or otherwise dispose of the donated property within two years of the date of the gift, the Foundation must file an information return on IRS Form 8282 and send a copy to the donor.
Tangible Personal Property
The Foundation may consider gifts of tangible personal property (“personal property”), including but not limited to works of art, taxidermy, stamp and coin collections, manuscripts, literary works, boats, motor vehicles, computer hardware and software only after a review indicates that the property is either readily marketable or needed by the University for use in a manner which is related to education, research or a combination thereof.
It is the policy of the Foundation to sell or otherwise dispose of all gifts of personal property, unless the items can be used by the University or Foundation in a manner related to education and/or research. The Foundation’s intention to either resell the
property or to retain and use it to further its charitable activities shall be communicated to the donor in writing at the time of the gift. The selling of these gifts within 2 years will put the items to an “unrelated use” which will cause a reduced charitable contribution deduction for the donor. This reduction must be communicated to the donor.
Gifts of personal property shall be valued at their full fair market value. Gifts with fair market values exceeding $5,000 will be reported at the values placed on them by qualified independent appraisers as required by the IRS for valuing noncash charitable contributions. Gifts of $5,000 and under may be reported at the value declared by the donor.
Title to the gift property should be clear and unencumbered, and properly documented.
Management must approve gift acceptance, compatibility, maintenance, storage and transportation costs.
If the Foundation should sell or otherwise dispose of the donated property within two years of the date of the gift, the Foundation must file an information return on IRS Form 8282 and send a copy to the donor.
Direct pledges are commitments to give a specific dollar amount according to a fixed time schedule.
The following minimum information must exist to substantiate a direct pledge:
- the amount of the pledge must be clearly specified;
- there must be a clearly defined payment schedule;
- the donor may not prescribe contingencies or conditions;
- the evidence of the pledge should include words such as “promise”, “agree”, “will”, “binding, legal”. It should not contain words such as “intend”, “plan”, “hope”, or “may”, and
- the donor must be considered to be financially capable of making the gift.
These direct pledges or promises to give are recorded in the financial statements in the year of the pledge at the value of the entire pledge discounted to present value in accordance with Financial Accounting Standards Board (FASB) regulations.
These pledges are defined as those which relate to bequests, life insurance beneficiary designations, and retirement plan beneficiary designations. These are not recorded on the financial statements. However, they are tracked separately and disclosed as a footnote to the financial statements to provide management and the board of directors of an estimate of the volume of deferred arrangements “in the pipeline.” Realistically, there is little which can be regulated on these forms of gifts since they do not require the approval of the Foundation – either its management or its board of directors.
Deferred gifts include but are not limited to the following:
- Charitable Bequests
- Retirement Plans
- Charitable Gift Annuities
- Charitable Remainder Trusts
- Charitable Lead Trusts
- Life Insurance Policies
- Remainder Interests Subject to Life Estates
- Pay on Death Accounts
Charitable Bequests and Retirement Plans
Donors can make charitable bequests to the Foundation in wills or living trusts. In addition, donors can name the Foundation as beneficiary of their retirement plans such as their IRA, 401K, 403B. This designation can be in whole or part, as a stated amount or a percentage of their balances at death. New laws (Pension Protection Act) may allow donors to donate up to $100,000 of their retirement dollars if age 70 ½ or older.
Charitable Gift Annuities
A charitable gift annuity is a contract between the Foundation and the donor, whereby the donor makes an initial payment of cash or other acceptable assets to the Foundation and the Foundation agrees to pay the annuitant an income for the rest of his/her lifetime. The entire assets of the Foundation back the income payments of a gift annuity contract. The annual payment to the annuitant is based on the donor’s age and the fair market value of the contribution made by the donor. The Foundation offers the gift annuity rates recommended by the American Council on Gift Annuities. The rates in these tables take into account the age of the donor and/or beneficiary at the time of the gift and are actuarially calculated to provide 50% of the market value of each gift remains at the death of the last annuitant. The Foundation may enter into CGA contracts with minimum funding of $10,000. The minimum age for immediate annuitants is 55. For deferred annuities the minimum age is 45 and payments may not begin until the annuitant has reached 55. The maximum number of annuitants, per contract, is two.
Property accepted for CGA’s includes cash, publicly traded securities. Closely held securities, real estate, tangible personal property and other illiquid property will be reviewed for acceptability and approval. Valuation, liquidity, carrying and disposal costs may require the Foundation to required a deferred CGA or a lower than ACGA payout rate to compensate for risk and costs. Exceptions to the requirements stated require approval of the Gift acceptance committee of the Governance Committee.
The Foundation will accept current gift annuities, which begin payments at the next payment date (quarterly, semiannually or annually), as well as deferred gift annuities, whose initial payment is at least a year after the gift date. The deferral period will be at the discretion of the donor.
Gift annuity contracts are governed by the laws of the state in which the donor resides. Certain of these states have stringent registration requirements. For gift annuities to be established in states other than North Dakota, the specific regulations and requirements for that state will first be reviewed by the Director of Planned Giving and the CFO; and a recommendation will be made to the CEO for approval. Currently gift annuities can be issued in Arizona, California, Connecticut, Florida, Idaho, Iowa, Minnesota, Montana, Nevada, North Dakota, Oklahoma and Texas. Any questions will be resolved by General Counsel of the Foundation. The Foundation reserves the right to reject any annuity contract proposals from states where the regulations are deemed overly burdensome or when excessive compliance costs would be required.
When a gift annuity is accepted it will be invested in order to provide for future annuity payments. The asset management fee as set up the Budget and Grants committee will be applied to the gift annuity pool of investments. Upon the death of the donor, or other named beneficiary, the balance of the principal is retained by the Foundation. If a gift annuity has been designated to a restricted fund, a 15% fee will be charged by the Foundation.
Charitable Remainder Trusts
Annuity Trusts
Annuity trusts are similar to Unitrusts except that the donor and/or beneficiary annually receive a payout that is fixed irrevocably at the time of the gift and stated in the trust agreement. The payout must equal at least 5% of the fair market value of the assets placed in the trust when it is created. Income in excess of the annual payment is added to the principal. Unlike a unitrust, additions may not be made to Annuity Trusts.
The trust assets are invested according to investment guidelines established by the Foundation’s Investment Committee.
Unitrusts
The basic form of Unitrust provides for payment to the donor and/or beneficiary of an amount equal to a set percentage of fair market value of the assets of the trust, valued annually. The percentage is determined at the time the trust is created, is stated in the trust, and is permanent. The minimum payout allowed is 5% annually. The maximum percentage shall be determined by the Foundation administration based on recommendations by the planned giving staff. The maximum percentage shall be based on several factors, including the age of the donor(s), number of lives, amount of gift, rate of return on U.S. Treasury bonds at the time and other considerations. Also, the value of the charitable remainder must be at least 10% of the net fair market value of the property transferred to the trust on the date of the transfer.
If the Foundation is to serve as trustee, the Foundation must be at least a 50% irrevocable remainder beneficiary of the trust.
Trusts may be funded with cash, stock, real estate, tangible personal property or a combination of these assets.
Payments may be set for life, or a trust term not to exceed 20 years.
Income payments are based on a fixed percentage of the annual market value of trust assets and will vary in amount as the value of the assets change.
Payments to income beneficiaries must come exclusively from the trust assets and are not guaranteed by the Foundation.
The only fees that will be charged to a trust are those charged by external sources. If the Foundation is to serve as trustee for a charitable remainder trust funded with real property, all Foundation policies for acceptance of real estate must be followed.
The trust assets are invested according to policies established by the Foundation’s Investment Committee.
Charitable Lead Trusts
This trust is designed to make periodic payments to the UND Foundation for a period of several years, after which the trust terminates and the assets pass to the designated individuals either outright or in trust.
Major gift donors may use charitable lead trusts to fulfill pledge agreements with cash,
stock, real estate (or a combination of these assets) placed in trusts.
Under normal circumstances, the Foundation will not serve as trustee.
Gifts of Life Insurance
The Foundation can receive two types of life insurance gifts.
- The Foundation can be named beneficiary of a life insurance policy and does not own the policy.
- The Foundation can be owner and beneficiary of a life insurance policy.
The following criteria apply to insurance gifts when the Foundation is owner and beneficiary:
- The premium must be a lump sum payment or annual premium payments. These premium payments are made to the Foundation and the Foundation records these donor payments as gifts and provides appropriate acknowledgement. The Foundation remits the premium payments on to the insurance company.
- The policy may not be a term insurance policy.
- The donor agrees to be responsible for making additional premium payments if the interest rates fall below expectations and additional premium payments are required.
The donor, on the advice of the donor’s advisers, must decide which is in the donor’s best interests, to name the Foundation owner and beneficiary or to name the Foundation the beneficiary only.
The donors will be informed that if, for any reason, they are unable to make the gifts to cover the premium payments and there are not dividends to cover the payment, the Foundation will select an option deciding the future of the policy based upon several factors, which may be age of donor, death benefit, amount of paid-up insurance, amount of premium, number of premiums remaining, etc. The options are:
- To not pay any additional premiums and consider the policy paid at current level of insurance.
- To surrender the policy for the cash value and use the funds as designated by the donor.
- To use Foundation resources to pay the insurance premium.
Life insurance is valued at the cash surrender value.
It is the stated policy of the organization that it will not serve as trustee of a life insurance trust where there exist beneficiaries in addition to the Foundation.
Remainder Interest Subject to Life Estate
Donors can receive a sizable charitable income tax deduction by making a gift to the Foundation of their personal residence or farm while retaining full use and rights to the property during their lifetime. (The donor retains a “life estate” and the Foundation receives the “remainder interest.”)
The gift is created by transferring a warranty deed to the Foundation, which reserves a “life estate” for the life of the donor, or his or her designates.
Donors must sign a “Life Estate Agreement” with the Foundation, the remainderman of the life estate, to clarify their responsibility for property repairs, taxes, insurance and other expenses.
Donors are encouraged to have all documents reviewed by their own attorneys.
All the normal review and gift acceptance procedures for gifts of real estate apply to gifts of life estate/remainder interest deeds.
A remainder interest in a life estate may also come via a donor’s last will and testament, a Granted Life Estate. In this circumstance, the donor designates the Foundation as the remainderman subject to a life estate granted to another individual or individuals.