In a Generous Spirit

An excerpt from To Give and To Receive: A Handbook on Gifts and Donations for Museums and Donors

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Edited by Sharon Smith Theobald and Laurette E. McCarthy, with contributions by Amy McKune, Beth J. Parker Miller and Romy M. Vreeland.

Museums in the United States and the public they serve benefit immensely from the generosity of donors. The tax incentives available to those who give art, historic objects and many other types of collectible material to qualified not-for-profit institutions encourage this philanthropy. It is not an exaggeration to state that without the vital partnership between donors and museums, many museums in this country could not sustain their operations.—Sharon Smith Theobald and Laurette E. McCarthy

Museums as Donees
Standards, Best Practices, and Ethical and Legal Responsibilities
By Beth J. Parker Miller and Amy McKune

Obligations of the Museum as Donee
With the benefits of charitable donation come mutual obligations for both donor and museum. Nonprofit museums must follow both ethical and legal requirements in their role as a charitable organization benefiting from gifts. Museum industry best practices require museum staff and boards to consider key questions thoughtfully when deciding whether to accept a gift offer:

Does the gift support the mission of the museum? Will it be useful for exhibition, educational or research purposes.
Can the museum legally, ethically and effectively manage, document, care for and use the gift?
Can valid and unencumbered title pass to the museum? Can the gift be acquired legally? Does the donor have clear title and the legal right to make the gift? What rights will be conveyed with the gift? Is the gift unrestricted? If restricted, do the restrictions permit the museum to make best use of the object now and in the future?
Is the object authentic? What is the provenance of the gift?
Museum collections management policies and collecting plans should guide museum decisions regarding the acceptance of a gift offer. Collections policies and plans address these and other key topics:
What collections does the museum hold?
What kinds of objects does the museum collect?
What decision-making process, including legal and ethical considerations, does the museum follow to accept gifts to collections?

It is imperative that museum personnel strive to follow all legal and ethical standards regarding accepting gifts for the collection. The first steps in complying with these standards are to understand the legal process in which you are engaged, and to accurately and effectively communicate with donors. Having policies governing these gifts, and adhering to them, is crucial.

Title Transfer and the Museum’s Role

There are three legal requirements to complete a gift: the offer (expression of intent by the donor), the acceptance by the donee and the delivery (transfer of physical possession to the donee). The date of transfer is the date of acceptance or delivery, whichever occurs last. Documentation is a fourth important step, as the museum as the donee has the burden of proof to demonstrate that these requirements have been met. Thus, the museum must obtain and retain sufficient documentation of the transfer of title and completion of the gift.

The Offer

A donor must express intent to complete the gift, whether verbally, with a letter or e-mail communication, or through signature on a deed of gift.
It is important at this stage of the gifting process for the museum and donor to begin discussing donor and museum intent, including use of the object, method of giving, restrictions, appraisal and tax deductions, and the museum’s process and timetable for internal review and acceptance.
Written documentation of the donor’s offer should be maintained as part of the object’s donation record. A counter-signed deed of gift is the preferred instrument to demonstrate donor intent.

The Acceptance

The museum should formally accept a gift, and it is best practice to document this acceptance with a letter from the proper museum authority and a counter-signed deed of gift.
A museum’s collections management policy typically addresses the process for review and acceptance of gift offers. A gift offer is commonly first entertained and evaluated at the curatorial level, with recommendations then forwarded for approval to a staff-level committee, the director or CEO and, if required by policy, the board-level collections committee and the full board of trustees. It is during this approval process that a museum should thoughtfully determine, justify and document its reasons for accepting a gift.
The museum’s official acceptance date is determined by the institution’s collections policy and this should be applied consistently with all gifts. Some institutions consider the date of acceptance to be the date of the final step in their internal gift approval process, documented through meeting minutes or an internal gift approval form. Other institutions use the date of counter-signature on the deed of gift and/or letter of acceptance to the donor as the formal date of acceptance.
Communication with the donor regarding the museum’s formal acceptance of the gift is best documented in writing and should be maintained as part of the object’s donation record.

The Delivery

A museum as donee must take physical possession of the objects in order to complete the gift. Physical possession may be completed by an agent for the museum, such as a fine arts transportation or storage company. If the gift is a fractional interest donation, then under current law the museum must retain substantial possession of the object.
Physical possession often precedes the acceptance, as museums frequently receive gift offers on temporary receipt so that staff may review and evaluate the objects before deciding whether to accept the donation.
Museums commonly document delivery through a receipt form, signed and dated by both parties (or their agents). These receipt documents should be maintained in the object’s donation record.

Documentation

Museums and donors are best served when all steps of the gift process are documented in writing. Written documentation establishes completion dates necessary for donor tax purposes, helps prevent misunderstandings between donors and museums, and enables the museum to fully document title transfer in its records. Museums need to understand that the date of donation can affect when a donor secures an appraisal and when the donor may claim a deduction.
A counter-signed deed of gift, or other legal gift agreement, is the most common and preferred method of documenting the completion of a gift. Deeds of gift should:
include a full description of the donated objects
confirm transfer of any rights that will pass with the objects
note any restrictions placed on the use of the gift
state whether any goods or services were exchanged for the gift, and
be signed and dated by both donor and donee.

To be fully tax-deductible, gifts should be made with no significant benefit to the donor.

Charitable Contributions Appraisals, Tax Advice and the Museum’s Role

Museum best practice guidelines strongly encourage museum staff and trustees to direct donors to seek independent tax and legal counsel related to their specific gift situation. However, this does not mean that staff should operate in a vacuum with no knowledge of law pertaining to charitable contributions. Museum staff should have some understanding of donor and donee obligations for appraisals, methods of giving and intended use of the gift.

Appraisals for tax purposes must be completed by a qualified appraiser as defined by the IRS. Neither museum staff nor the donor may complete an appraisal for a donation, as both are party to the transaction. Appraisals must be completed no earlier than 60 days prior to completion of the gift and no later than the due date (including any extensions) of the return. It is therefore incumbent on the museum to communicate the timeline for acceptance of the gift to a prospective donor.

Tax law applicable to fractional gifts as of 2011 requires the donor to have a new appraisal completed for each donation of additional fractions. Tax law also requires museums to take “substantial physical possession” of the gift and make a related use of the property. Museums must understand their obligations and should seek legal counsel when accepting fractional gifts.

Donors that elect to take a tax deduction for a charitable contribution must file IRS Form 8283. For gifts in total value over $5,000, the authorized museum representative must complete Part IV, Donor Acknowledgment on Side B of the form. The museum representative who signs the form must be authorized to sign the tax returns of the organization or must be specifically authorized to sign the 8283 form for the organization. This individual should have a clear understanding of what the donor gave, whether any restrictions were attached to the gift, whether full or partial interest in the gift was conveyed, and the intended use of the gift, in order to accurately complete and sign for the museum.

Whether a gift is accepted for a related or unrelated use impacts the extent of the tax deduction a donor may claim. Therefore museums must accurately state and convey to the donor the institution’s intended use of the gift. Gifts to be used for mission-related activities are usually considered “related” gifts. However, gifts of objects not related to the mission of the institution may be “unrelated.” Of note, the gift of objects to a museum for the institution to sell, even if the proceeds are to benefit the collections, is considered by the IRS to be “unrelated.”

Museums are stewards of collections held in trust for the public. When engaged in the charitable gifting process, museums are wise to be mindful of this role and to act not only legally but also ethically. Above all else, if ever you are asked to deviate from generally accepted practices, consult museum colleagues with a greater level of experience and/or legal counsel before proceeding.