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Our local chapter of a national 501(c)(6) membership association recently made our scholarship fund a separate 501(c)(3) nonprofit organization. A member's family donated $6000 with the stipulation that that money carry the family's name and the donor be on the selection committee for scholarship recipients. May a donor impose such requirements on the donation? Must we honor these stipulations?

Donors may seek to impose requirements on administering their donations, but you don’t have to accept the money if you are not willing to live with them. If you do accept the money, you have to follow the stipulations except to the extent that you get the donors to waive them.

You should be aware that Congress changed the rules on donor-advised scholarship funds in the Pension Protection Act of 2006 so that donors may not be the only advisors on a scholarship fund.  (See Ready Reference Page: “Congress Passes Charitable Reforms”) But a scholarship fund may include a donor in a minority position on a scholarship selection committee appointed by the charity holding the fund. The way you phrase the question suggests that you would appoint other members and it would be permissible.

The other question is whether you want to name the fund after the family. Colleges and universities usually ask a whole lot more to name a scholarship fund, often $200,000 or more. Community foundations are usually willing to accept less, but often won’t make distributions until the fund reaches at least $10,000. $6000 can go very quickly if the fund is not to be held as an endowment.  If it is endowed and distributes 5% a year, the grant is only about $300. The name, however, is totally a matter of choice. It is not regulated by the law.

12/13/2011