Certified Fund Raising Executive (CFRE) Practice Test

What type of gift is most likely to require formal recognition agreements?

1. Unrestricted gifts

2. Major gifts

3. In-kind donations

4. Annual fund contributions

The correct answer is: Major gifts

Formal recognition agreements are typically associated with major gifts due to the significant financial impact these contributions can have on an organization. Major gifts often involve larger sums of money, which can entail specific expectations from the donor regarding how their contribution will be used or recognized. Establishing an agreement helps ensure that both the donor's intentions are honored and that the organization can fulfill its commitments. These agreements might outline recognition details, such as naming opportunities, the timeline for funding, and reporting on how the funds will be utilized. Therefore, the nature of major gifts, with their potential for substantial influence and long-term impacts on a nonprofit's mission, necessitates a more formalized relationship and clear expectations through these agreements. On the other hand, unrestricted gifts typically provide the organization with flexibility on how to allocate the funds and do not usually require a formal agreement. In-kind donations might involve informal arrangements or receipts but do not typically need the structured agreements that come with major contributions. Similarly, annual fund contributions are generally smaller amounts that support ongoing operations without specific donor recognition needs that require formalization.