Charitable Giving: Making Substantial Gifts

Making a substantial gift to a charitable fund requires a sense of responsibility on your part to ensure that your donation is being used for what you intended. From the charities, you should request information to give you a clear idea of the kinds of programs the charity operates, how and where these programs are carried out, who governs the charity, how much of each dollar is spent on the charity’s programs, and how much is spent on fund raising and administrative costs.

Before you donate, you should ask for

• a copy of the latest annual report
• a list of board members
• the organization’s latest financial statement

The financial statement should show categories of income and expenses so you can clearly see the source of the charity’s money and how funds are used. Expenses are generally broken down into three main categories:

• Program Services: Costs could include research grants made to scientists, salaries of medical personnel working in overseas missions, food supplies sent to feed disadvantaged populations, or information pamphlets explaining a disease to the public.
• Management and General Expenses: Costs are associated with the daily administration of the charity. Typical expenses in this category include office supplies, rent, salaries of administrative personnel, and fees paid to accountants and lawyers .
• Fund Raising: Costs might include the printing and mailing of appeals, advertising in magazines and newspapers, and fees paid to professional fund raisers.

When evaluating the financial statements of the charity, you should compare the charity’s expenses to its income. In general, the Council of Better Business Bureaus’ Standards recommend:

• at least 50% of the charity’s total income be spent on programs
• at least 50% of public contributions be spent on the programs described in appeals
• no more than 35% of contributions be spent on fund raising
• no more than 50% of the charity’s total income be spent on administrative and fund raising costs.

Special circumstances might make a charity’s expenses reasonable even though they do not meet the percentage guidelines. One such situation may be that a new organization will understandably have higher fund raising costs than an established charity. If a new organization does not yet have a financial statement or annual report, you may want to request a budget and information about the charity’s funding goals and proposed programs.