Q: Some of our homeowners want to leave the association money in their will. Can the association accept these sorts of gifts? Does it need to be set up through a trust or used for a specific purpose?
—New York
A: Unless inconsistent with the terms of an association's governing documents or any certificate of incorporation, there is nothing that would restrict an association from accepting a monetary gift, be it during the life of the donor or as part of testamentary bequest. Similarly, a donor could establish a trust for the benefit of the association. If the association is aware that a donor desires to provide for the association in a will or trust, it may be beneficial to meet with the donor to ensure the intent and purpose of the donation can be satisfied.
While a general gift could be used by the association for any authorized purpose, a gift also may be directed by the donor for a specific purpose, such as common area improvements or capital projects. To the extent a gift is designated for a particular purpose requiring prior approval under the association's governing documents, the donor's directive does not excuse strict compliance with applicable procedures.
If a directed gift cannot be used for a purpose authorized by the governing documents, the gift may need to be returned. If the donor is alive, the association could request that any restriction be removed or modified. However, if the gift is testamentary, the association may be required to petition the surrogate court to redirect the gift to another recipient who can better fulfill the donor's intent.
Both the donor and the association should be mindful of associated tax implications. For the donor, gifts to an association generally cannot be deducted on personal tax returns. Even if an association is tax-exempt or a nonprofit corporation, it is not a qualified charitable organization. Only donations to qualified organizations defined by the Internal Revenue Service are deductible as charitable contributions.
For the association, donations may be considered taxable income, so board members should consult with the association accountant and attorney.
Finally, while associations should not rely on donations to balance their budget, the generosity of owners can provide community benefits to be enjoyed during their life or as lasting legacies.
>>Corey A. Auerbach is a partner with Barclay Damon in Clarence, N.Y. cauerbach@barclaydamon.com
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