Understanding Charity Law is important for organizations that receive restricted donations, particularly when the original purpose of a gift can no longer be fulfilled. Restricted donations can help charities fund important programs, purchase equipment, or respond to specific community needs. They can also create difficult legal questions when circumstances change.
Restricted donations can help charities fund important programs, purchase equipment, or respond to specific community needs. They can also create difficult legal questions when circumstances change. A donor may contribute money for a particular program, only for that program to close, become impractical, or no longer fit the charity’s current activities.
The charity may still hold the money, but that does not necessarily mean the board can simply redirect it to another worthwhile purpose. In British Columbia, some restricted charitable gifts may be treated as property held for a specific charitable purpose. This obligation generally arises from the common law of charitable purpose trusts.
The central question is not whether the proposed alternative use is beneficial. The question is whether using the money differently would respect the terms on which the donation was originally accepted.
Understanding the Charity’s Obligations
A restricted donation is generally a gift that a donor directs toward a particular purpose. That restriction may appear in a gift agreement, fundraising appeal, donor letter, online donation form, grant document, will, or other communication. The wording matters. A general statement that a donor hopes the money will support youth programming may not carry the same legal weight as a clear direction that the funds must only be used to operate a named youth program.
Once a charity accepts a legally restricted gift, the organization may have an obligation to use it only for that purpose. Moving the funds into the general operating account does not remove the restriction. Board members should therefore refrain from treating restricted donations as available cash when preparing budgets or responding to a financial shortfall.
Reallocating the money without proper authority can create several problems. The donor or the donor’s estate may object, and the charity could face a nonprofit donation dispute. The decision may also raise concerns about directors’ governance duties, financial reporting, and the organization’s reputation. Registered charities must continue to operate within their charitable purposes and comply with the federal rules that apply to receiving and using charitable gifts.
The first practical step is to review the original donation documents and surrounding communications. The charity should determine exactly what was promised, whether the restriction was accepted, and whether the agreement already addresses what will happen if the intended program ends. Board minutes, campaign materials, receipts, correspondence, accounting records, and notes of conversations may all help clarify the donor’s intention.
Where the donor is living and can be contacted, a conversation may provide a reasonable path forward. The charity can explain why the original purpose is no longer practical and ask whether the donor is willing to approve a closely related use. Any agreement to change the restriction should be properly documented rather than handled through an informal conversation alone.
Communication should be open and respectful. Donors generally place restrictions on gifts because a particular cause matters to them. Approaching the discussion as a request for collaboration, rather than announcing that the funds will be redirected, can help preserve the relationship and reduce the risk of conflict.
Read More: Legal Steps to Incorporate a Non-Profit Organization in British Columbia
Finding a Lawful and Practical Solution
Not every restricted donation can be resolved through donor consent. The donor may have died, the gift may have been made through an estate, or the restriction may affect a broader charitable trust. In other cases, the donor may not agree to a change even though the original purpose has become impossible or impractical.
A court application may be required in some circumstances. Under the cy-près doctrine, a court may permit charitable property to be applied to a purpose as close as reasonably possible to the donor’s original charitable intention when the original purpose can no longer be carried out. The doctrine is not automatic. The court will generally look for a broad, or “general”, charitable intention on the donor’s part; where the donor intended to benefit only the one specific purpose and nothing else, cy-près may be unavailable. The doctrine is not simply permission for a board to choose a more convenient use. It involves careful consideration of the gift, the donor’s intention, and the legal character of the restriction. In British Columbia, the Attorney General is ordinarily a necessary party to such an application, as guardian of the public interest in charitable property. These applications are not always successful.
Legal advice should be obtained before using restricted money for a different purpose or beginning a cy-près application. The appropriate response will depend on the wording of the restriction, how the donation was solicited, whether a charitable trust was created, and whether another use would remain consistent with the charity’s purposes.
Good records are especially important throughout this process. Charities should maintain copies of gift agreements, donor directions, campaign materials, board resolutions, correspondence, and accounting records that clearly identify restricted funds. Separate tracking helps the board understand how much money remains, what income has been earned, and whether expenditures comply with the restriction.
Future disputes can often be prevented through carefully drafted gift agreements and fundraising language that gives the charity more flexibility. A charity may wish to include terms explaining what will happen if a program is completed, discontinued, fully funded, or no longer practical. Depending on the circumstances, the agreement might allow the board to use remaining funds for a similar charitable purpose while still respecting the donor’s overall intention.
At L. Johnson Law Group, we help charities understand donor restrictions, charitable trust obligations in BC, and the options available when a restricted purpose can no longer be fulfilled. If your organization is holding funds it cannot use as originally intended, get early legal guidance can help the board respond carefully, preserve donor trust, and find a solution that supports the charity’s work while respecting its legal obligations.