Raising Funds for Named Individuals
It is an act of generosity and kindness to help others in their time of need. However, a person raising funds for another must take reasonable steps to protect the money raised. This document contains tips for those who are raising money to help another with his or her medical or other hardship costs.
- When raising money, accurately describe how the funds will be used. Don't limit the use of the funds by describing the purpose too narrowly. For instance, if the money is needed to pay for more than just medical costs (but also for transportation, food, housing or other necessities associated with the medical problem), anticipate those other needs and use general terms that include all possible uses of the funds.
- Think about what will be done with the money remaining after the expenses and other purposes for which the funds were raised are paid. In order to avoid having to petition the court for permission to do something else with the money, disclose to prospective donors how you will use money that is left over. For instance, you may want to give the money to charity if there is anything left. In this case, tell prospective donors that information right from the beginning.
- When the money is donated, protect it by depositing it immediately in a trust or savings account created for that purpose. Keep the funds separate from money raised or held for other purposes.
- Seek the assistance of a trust officer at the bank or savings institution. Frequently, the bank will have its own rules and procedures to help protect the money. In all likelihood, the bank will require a tax identification (or social security) number.
- It is a good idea to require two signatures on all checks withdrawing the money. The two people should not sign checks in advance and should know where the money is going before authorizing its withdrawal. It is helpful if payments are made only upon receipt of a bill or Invoice.
- One of the two persons eligible to sign checks should not be a relative of the beneficiary. If only one person has authority to sign checks, it is better (but not required) for that person not to be related to the beneficiary.
- Money paid out of the trust account should only be paid for purposes directly related to those purposes described to prospective donors.
- Keep accurate records of incoming and outgoing funds. The better the record, the greater the protection for the persons charged with the responsibility of protecting the money.
- Don't contract with or give the money to an outsider unless you are absolutely certain that the outsider is trustworthy.
- In most cases, donations to an individual will not be tax deductible. Only gifts to organizations classified by the IRS (pursuant to section 50l(c)(3) of the Internal Revenue Code) as eligible to receive tax-deductible contributions are tax deductible. State law requires you to disclose the non-tax deductibility of the contribution to prospective donors.
- Check with medical assistance and/or your personal tax or legal advisor as to how funds received will affect eligibility for medical assistance programs and how they should be treated for tax purposes.
The above information is intended to provide a brief summary of some of the procedures people should follow when raising funds to benefit or help a beneficiary identified in the solicitation by name. This document is not intended to describe specifically how these funds should be managed. Rather, it is aimed at helping people prevent problems before they arise!
Please remember that this information is not a substitute for professional legal assistance. The Attorney General has no authority to give legal advice to private individuals. An attorney or accountant should be consulted for help in these matters.