Question: Show What is the proper way to set up an account for donations to assist a family whose home was destroyed by fire? Who should sign on the account, what tax identification number should be used, and how should the account be titled? Answer: When I served as General Counsel for the Oklahoma Bankers Association, this question was frequently asked by bankers. In August, 1994, I wrote an article for the OBA publication that we are reprinting here, as I think it still offers helpful guidance. A family's house burns down, leaving family members with only the clothes on their backs and no money to replace the items they lost. A community member desperately needs a transplant operation. After a drive-by shooting claims the life of a teenager, family and friends mount a fund-raising effort to cover the funeral expenses. A popular news reporter dies in a plane crash and members of the public send money for the reporter's child's education. All of the terrible scenarios described above have one common denominator: they will all generate donations from family, friends, or generous strangers who have heard or read about the disaster. In many instances, those contributions will bring about the need for a special bank account. How you style the account, what documentation you require, and how you keep the bank from being caught in the middle of a fight over entitlement to the funds, are critical issues that must be grappled with before the account is activated. To determine the appropriate way to handle the account, it is necessary to obtain answers to the following questions:
There are several alternatives available to a bank when faced with the prospect of opening such an account. Those alternatives include: Requiring the establishment of a formal trust. The trust would have legal ownership of the funds; the beneficiary would have the beneficial interest. A trustee or cotrustees named in the trust instrument would be given certain specifically enumerated duties and responsibilities. The purposes for which the funds could be used would be delineated, and a procedure for appointment of successor trustees would be clearly set forth, as would an alternative use for the funds should the original intended use cease to exist. If an account is set up in this manner, you would follow IRS guidelines on trusts to determine if the trust itself had to have a separate tax I.D. number. Typically, it would. And a trust tax return would need to be filed. The trustee could either be an individual, or the bank's own trust department could serve as trustee if the account size warranted the use of a professional trustee. Another alternative would be for the bank's trust department to serve as cotrustee with the individual setting up the account. Particularly if the trustee is an individual, be sure the intended recipient of the funds is aware of the existence and nature of the trust and the provisions of the trust instrument in order to minimize the risk of fraud. When thinking about the precautions you must take, it may be helpful to think through the types of scams that could be perpetrated with this type of fund. For example, Dewey Cheatem could come to your bank and set up an account to raise funds to save the dying in Rwanda. Using flyers, newspaper ads, and door-to-door canvassing, he could solicit funds for this cause, deposit them into this account, and then utilize the contributions for his own personal benefit. You must ask yourself at the outset what the connection is between the person seeking to establish the account and the intended beneficiary of the funds. What evidence do you have of a relationship sufficient to warrant allowing the person to deal with these contributions? According to a few of our banks, in some towns these accounts are operated under the auspices of the town's Chamber of Commerce. The Chamber solicits the funds and establishes a special account (such as one styled, "Mt. Vernon Chamber of Commerce, Cynthia Jones Transplant Fund.") The Chamber's tax identification number is used, and the Chamber assumes all responsibility for proper expenditure of the monies collected. Unfortunately, this option is not universally available. Some Chambers of Commerce are unable or unwilling to assume such a task. If the intended beneficiary of the funds is a minor child, an account established under the Uniform Transfers to Minors Act ("UTMA") may be an option. The use of an escrow account is a remote possibility. The problem is that an escrow account requires an underlying agreement between two or more parties that the funds will be held until a stated time, or the occurrence of a particular event, or something of that sort. Who would the parties to an escrow agreement relating to a tragedy account be? Presumably, the bank would act as escrow agent, but the remainder of the arrangements would have to be devised by legal counsel -- if it's possible at all. The account could be set up pursuant to a specifically drafted deposit account agreement in which all the details regarding
and miscellaneous other matters are included. An individual, or group of individuals acting jointly, could then operate the account in conformity with the terms of the deposit account agreement. If the bank could secure from those individuals some kind of performance bond or indemnity agreement to protect the bank and the intended recipient of the funds, so much the better. And lest you think my overactive imagination is simply conjuring up unreal nightmares, consider the following very real and very public instances of tragedy account problems:
The bottom line is that it is important not to enter into these deposit relationships lightly. Because of the potential for fraud or misuse, careful thought should be given to the proper method for styling the account and putting proper precautionary measures in place. First published on BankersOnline.com 3/5/01 First published on 03/05/2001 How do I start a donation fund?How to Set Up a Donation Page for Fundraising Success in 8 Steps. Create an interesting fundraiser title.. Write a meaningful fundraiser story.. Choose the best types of photos and videos for your fundraiser.. Pick the right fundraising goal.. Share your fundraiser to get more donations.. Thank your supporters.. Which donation platform is best?9 Best Online Fundraising Platforms. Donorbox. Donorbox is a powerful all-in-one fundraising platform with a quick setup process and plenty of easy-to-use features. ... . GoFundMe. GoFundMe is a well-known online fundraising platform. ... . OneCause. ... . Handbid. ... . Bonfire. ... . Fundly. ... . Soapbox Engage. ... . 99Pledges.. How do I set up an online donation account?Here Are the 7 Steps to Create a Donation Website:. Create a donation page.. Create a donation form to collect your donor's information.. Setup automated tax receipts and thank-you messages.. Make your donation page shareable.. Add a donation button to your website.. Drive traffic to your donation page during giving seasons.. How do I set up a charity bank account?How to Open a Nonprofit Bank Account (in 5 Steps). Step 1 – File necessary documents with the state. ... . Step 2 – Get your Employer Identification Number (EIN) ... . Step 3 – Get the nonprofit status from the IRS. ... . Step 4 – Gather necessary documents to open the account. ... . Step 5 – Research banks and open an account.. |