Key Term

What is Restricted Gift?

Definition

A restricted gift is a charitable donation in which the donor specifies conditions or limitations on how the contributed assets can be used by the recipient organization. These restrictions may dictate the specific program, time period, or purpose for which the funds must be used, and the receiving organization is legally bound to honor these restrictions or risk breaching their fiduciary duty.

Significance

Restricted gifts play a crucial role in philanthropic planning as they allow donors to maintain greater control over their charitable impact and ensure their donations align with their specific charitable intentions. For nonprofits, while these gifts provide valuable funding for particular programs or initiatives, they can also present administrative challenges and reduce operational flexibility. Organizations must carefully track and report on restricted funds separately from unrestricted donations, and donors should thoughtfully consider whether restrictions are truly necessary to achieve their charitable objectives, as they may inadvertently limit an organization's ability to adapt to changing needs or circumstances.