Week 5 Flashcards
Which of the following statements are responsibilities, with regard to the stewardship of planned gifts?
I. using given funds in accordance with donor intent
II. investing endowments prudently
A) I
B) II
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. The best answer is both.
A donor wanted interest on her gift to be used for programs and the principal preserved. Imagine that the market has fallen 50%, along with the endowed fund. Which act(s) listed below would allow the funds to be tapped in order to meet the ongoing program needs, even if the fund is below its original value?
I. the Uniform Management of Institutional Funds Act (UMIFA)
II. the Uniform Prudent Management of Institutional Funds Act (UPMIFA)
A) I
B) II
C) Both I and II
D) Neither I nor II
B) II
The correct answer is B. UPMIFA allows this. It is the newer act. The earlier act, UMIFA, did not allow it.
You hear a fundraiser say, “Well, gift agreements are all well and good, but they are seldom enforceable. After all, the donor has given up control. It wouldn’t legally be a gift, if the donor still had control.”
Which of these is (are) a point a CAP® should make?
I. A number of current lawsuits indicate that gift agreements may well be enforced in the courts.
II. The organization has an obligation to respect donor intent to the extent possible for ethical reasons and also to preserve and enhance the good will of donors.
A) I
B) II
C) Both I and II
D) Neither I nor I
C) Both I and II
The correct answer is C. Both statements are correct. Lawsuits increasingly show that donor intent can be enforced. Also, it is right to fulfill the obligation undertaken in the gift agreement. It is certainly good for the organization’s ongoing fundraising to be known for keeping faith with donors after the gift is made.
How can a charity protect itself, as it enters into gift agreements with donors?
I. If possible, gift agreements should be flexible.
II. If possible, gift agreements should contain provisions for change.
A) I
B) II
C) Both I and II
D) Neither I nor I
C) Both I and II
The correct answer is C. Both are good ideas, if the donor will agree to them.
Why are variance powers in a gift agreement a good idea, from the nonprofit’s perspective?
A) Donors generally prefer including them.
B) The donor’s legal counsel will insist upon the powers’ inclusion.
C) The donor’s heirs will want the gift to change with the times.
D) Such provisions may protect the charity when the donor or the heirs disagree with the charity about how the gift will be used.
D) Such provisions may protect the charity when the donor or the heirs disagree with the charity about how the gift will be used.
The correct answer is D. Forever is a long time. Restricted gifts can become an encumbrance to the charity as time goes on. So, letting donors know in advance that the organization’s policy is to give the charity flexibility may provide some defense, if the charity and the donor or the donor’s heirs disagree in the future. The organization will be on record with regard to the degree of flexibility the gift accords itself before the gift is made.
Each of these is a good reason to maintain gift acceptance policies, EXCEPT
A) With policies in place, individual judgment is superseded.
B) Donors should know that they are being treated in accordance with standard policies and procedures.
C) The staff should know who is allowed to accept what assets on what terms.
D) The charity may be prevented from accepting assets, such as unmarketable real estate or property subject to an EPA problem, that might cause the charity problems.
A) With policies in place, individual judgment is superseded.
The correct answer is A. Judgment is guided by the policies and procedures, but a gift acceptance process and delegated authority to accept gifts will still require good judgment within the rules.
What is the best definition of the term “gift counting,” as discussed in this course?
A) the number of gifts given in each category of gifts, such as current, major, and planned gifts
B) an actuarial analysis taking into account the amount of the gift, the time it will take to mature, and how likely it is to mature
C) the present value analysis of the economic value of current and deferred gifts
D) the crediting of gifts towards campaign totals and donor recognition levels
D) the crediting of gifts towards campaign totals and donor recognition levels
The correct answer is D. Gift counting is the crediting of gifts towards campaign totals and donor recognition levels.
An actuary or comptroller would likely consider which of these as a true measure of a deferred gift’s value?
I. gift valuation standards
II. gift counting standards
A) I
B) II
C) Both I and II
D) Neither I nor I
A) I
The correct answer is A. Gift counting is a marketing tool. It makes it easy to give donors credit for gifts in particular categories without recourse to actuarial or present value calculations. The valuation standards and procedures, by contrast, are more oriented to the financial analysis needed to predict future cash flows, including those from contingent and deferred gifts.
According to the procedures outlined in the “Guidelines for Reporting and Counting Charitable Gifts,” 2nd edition, by the National Association of Charitable Gift Planners (CGP), what are the three categories used to count gifts towards donor recognition levels and campaign totals?
A) Current, future, and contingent
B) Current, major, and planned
C) Certain, uncertain, and likely
D) Outright, revocable deferred, and irrevocable deferred
D) Outright, revocable deferred, and irrevocable deferred
The correct answer is D. Outright, revocable deferred, and irrevocable deferred are the three categories.
Which of these is required of a fiduciary who is managing trust assets or assets in an endowment?
I. a prudent process
II. a prudent portfolio
A) I only
B) II only
C) Both I and II
D) Neither
C) Both I and II
The correct answer is C. Both statements are correct. The process and the portfolio must both be prudent. You have to go through the right steps and also be able to document that you have done so.
Under the Uniform Prudent Investor Act of 1994, which of these statements is true?
A) The standard of prudence is applied to the portfolio as a whole, rather than to each individual asset.
B) The risk of the portfolio is the sum of the risk of each asset considered separately.
C) Certain assets are prohibited.
D) Delegation to an investment manager is prohibited.
A) The standard of prudence is applied to the portfolio as a whole, rather than to each individual asset.
The correct answer is A. The act embodies modern portfolio theory, which holds that risk is managed at the portfolio level, that asset risks can offset one another, and that no one asset in a portfolio is risky. Each asset is to be assessed as increasing or reducing the overall risk of the portfolio. Delegation to qualified money managers is appropriate.
Under the Uniform Management of Institutional Funds Act (UMIFA), a nonprofit may release funds from a restriction imposed by a donor when
I. the fund is over 20 years old
II. the fund is less than $25,000
A) I
B) II
C) Both I and II
D) Neither
D) Neither
The correct answer is D: Neither. It is the Uniform Prudent Management of Institutional Funds Act (UPMIFA, not UMIFA) that lets a charity modify a restriction on a small (less than $25,000) and old (over 20 years old) fund without going to court. If a restriction has become impracticable or wasteful, the charity may notify the state’s charitable regulator, wait 60 days, and then, unless the regulator objects, modify the restriction in a manner consistent with the charitable purposes expressed in any documents that were part of the original gift.
In 1932, a school received $100,000 to provide perpetual maintenance for a chemistry lab. The school subsequently tore down the lab and replaced it with a new science complex. The school wishes to apply the income on the original endowment to maintain the new complex.
Under what doctrine(s) might the school appeal in justifying its decision?
I. cy pres
II. statute of limitations
A) I
B) II
C) Both I and II
D) Neither
A) I
The correct answer is A. Cy pres is the right answer. Cy pres means as near as possible, or near enough. The funds are applied as nearly as possible to the original intent. The statute of limitations applies to criminal action.
A treasurer for a charity is told that the campaign has raised $1 billion of which $500,000 is contingent and deferred. What standard(s) would the treasurer rely upon as he or she plans the budget for the current and following year?
I. gift valuation standards
II. gift counting standards
A) I only
B) II only
C) Both I and II
D) Neither
A) I only
The correct answer is A. Gift valuation will matter far more to the treasurer than the charity’s own gift counting standards. Gift counting is a matter of the charity’s policy for who gets credit for what. The gift counting policies will say how much, for example, a gift of a new $1 million dollar insurance policy will count for, if the donor is, say, 65. Will it count towards donor recognition and campaign totals at face amount? Will it count only for cash received or pledged by way of premium? The charity might lay down a policy of counting insurance at face amount for donors at ages 65 and over, but the treasurer does not have any money to work with now and will feel that the gift is being counted at an inflated amount. The treasurer will want to use valuation standards that take into account the time value of money and the likelihood that the policy will lapse.
The problem is, though, that to value each gift rigorously in this way greatly exceeds the capacity of the charity to do the valuing. So, generally, charities set up their own gift counting rules, and senior leaders are constantly uneasy with anything other than cash in hand or a legally binding pledge. Expectancies are wonderful when they mature, but until they do, it is hard to know what they are actually worth.
A donor is concerned that a charity may not fulfill her intentions with respect to a restricted gift. What provision(s) might it make sense to include in the gift agreement?
I. a reverter
II. an alternative purpose provision
A) I only
B) II only
C) Both I and II
D) Neither I nor II
B) II only
The correct answer is B. The second of the two ideas makes sense. The donor might stipulate an alternative use of the funds within the original charity, or the donor might specify an alternative charity to which the money might roll over. But a reverter does not make sense. If the donor specifies that the donor or donor’s heirs will get the money back if the charity fails to perform, then the gift will not be a completed charitable gift for tax purposes. That is, the gift will not qualify for an income tax deduction. Even if it did, the donor’s getting the money back would create a taxable event.
