It is permissible for a private foundation to donate in-kind gifts to a grantee. The private foundation will use the fair market value of the item for purposes of calculating the distribution amount.
That said, there are two basic issues to consider in this situation:
- Be sure to understand the grantee’s reason for asking for the donation in lieu of a grant, and evaluate it for any potential negative impact on your reputation. The most likely reason for this arrangement is so the grantee (e.g., a school) does not have to undertake a sometimes onerous procurement processes. Yet, if acquisition of the item has underlying internal politics associated with it, then it could come back to the foundation in negative ways.
- Evaluate the foundation’s liability if the item is defective. Document that the grantee selected the item without input from the foundation. Include in the agreement between the foundation and the grantee an indemnification provision that would indemnify the foundation for any defects, damages, or injuries caused by the item’s use.
Note from our legal advisor: “If a grantee asked a private foundation to buy and donate a vehicle for transportation, I would probably not agree to that, even with indemnification.”