How to Set Up a Memorial Fund at a Bank
This advisory summarizes the major issues involved with fundraising for an individual. It is not meant to be a substitute for legal counsel but, rather, an introduction to the issues you will need to think about. The Attorney General's Office (AGO) is not authorized to provide legal representation to individuals: you should consider consulting a private attorney regarding fundraising for an individual.
A "donor" is someone who donates or gives money or property to another. A "donee" or "beneficiary" is the person to whom the donor gives.
The basics
The Attorney General's Office becomes involved with charitable fundraising activities only when they are meant to benefit the public. Fundraising for a specific individual is not considered to be charitable fundraising, since the public at large does not benefit. Therefore, fundraising for a specified individual is not subject to the registration and filing requirements imposed on charitable organizations.
No matter what you choose to call your fundraising activity, it is not considered a charitable activity if it benefits only a specific individual or individuals. Donors to your fundraising campaign are essentially making a gift to the beneficiary.
Although the AGO does not regulate fundraising for an individual, if there is fraud or criminal activity involved with the fundraising or the handling of the money raised, the office may get involved.
What to do with the money
While you are planning your fundraising activities, you should also plan what you will do with the money as you raise it. You should open a separate bank account to hold the funds. This ensures that the money remains separate from your personal funds. It also allows donors to write checks with some confidence that the money will get to the designated beneficiary.
Explain what your purposes are to the bank when you open the account. The bank may have specific requirements not outlined in these guidelines. You should title the account something like "Friends of John Smith" or "The Mary Jones Fund." Whatever you decide, the title of the account should indicate who the beneficiary is.
Be sure to keep accurate and complete records of the money you receive from the fundraising activities, where it is deposited, and of any payments made to the beneficiary or beneficiaries.
Opening the bank account may present some special issues to think about, depending on who the beneficiaries are. One major consideration is who should have access to the funds to distribute on behalf of the beneficiary. You will want to be certain that the persons who have access will use the funds only for the purposes represented to the donors. Again, work with the bank to sort through these issues. Here are some suggestions for common situations:
- When you want to raise funds for a living adult, open the account using the beneficiary's Social Security Number. The person opening the account should be a relative or guardian of the beneficiary or, at least, have some established relationship with the beneficiary. You should try to have the beneficiary present with you when opening the account. However, if this is not possible, a notarized statement from the beneficiary giving permission to use his or her name and Social Security Number for the purpose of opening the account may be sufficient. Check with the bank. Decide who should have access to the funds and be a signatory on the account. If the beneficiary is competent and capable, there should be no need for another signatory. Otherwise, a relative or a legal guardian should be a signatory.
- When you want to raise funds for multiple individuals, open a single account, despite the fact that there are a number of beneficiaries. This simplifies things and keeps your costs down, and it is much easier for a donor to write one check than to write as many checks as there are beneficiaries. It's a good idea to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (Form SS-4; check off "Banking Purposes" in Section 9, "Reason for applying") for the account instead of using an individual beneficiary's Social Security Number. That way you will avoid confusion on ownership of the funds as well as on tax reporting issues. Note that only the account signatory will be able to withdraw funds. Donors should not be led to believe that the bank will manage or oversee the use of the money.
Note: if you have a large number of beneficiaries, there is a chance that your fundraising event may be considered to be a charitable solicitation, and you will have to register with the Non-Profit Organizations/Public Charities Division of the Attorney General's Office (AGO). If you believe this could be the case, please contact the AGO at (617) 727-2200, ext. 2101, before holding your fundraiser. AGO staff can help determine if your fundraiser crosses the line into "charitable" fundraising.
Complications with deceased beneficiaries
When you want to raise money to memorialize an individual who has died or if you wish to raise funds to help with the funeral expenses of a friend or relative who has died, you face additional complications.
You cannot use that person's Social Security Number to open the account. Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (Form SS-4; check off "Banking Purposes" in Section 9, "Reason for applying") for the account instead. The name of the account should reflect the deceased's name and the purpose of the fund, such as "The John Smith Funeral Fund."
Complications with minor beneficiaries
Fundraising to provide gifts to minors presents some special problems. Foremost is that a minor might not use the money you raise for the purposes it was raised for. Generally, you will want the minor's parent or permanent guardian/conservator to open the account, so that person can ensure that the funds are used for the proper purpose. Remember to follow the guidelines above when you choose a title for the account, however.
You may want to consult with an attorney about setting up a formal trust. A trust will set the comply with the Massachusetts Uniform Transfers to Minors Act ("MAUTMA")
Please refer to the statutory text or consult an attorney to make sure you understand this option before using it. In brief, however, the Act allows you to transfer money to a custodian, who manages the money on behalf of the minor. The custodian has broad powers to invest or use the money for the minor's benefit. The Act can be invoked simply by establishing a bank account in the custodian's name, "as custodian for" the minor "under the Massachusetts Uniform Transfers to Minors Act." Note that there can be only one custodian and one minor on a MAUTMA account.
Tax consequences
Gifts to an individual, or to a trust for the benefit of an individual, are very different from charitable donations made to public charities. A donor may claim a donation to a public charity as a charitable deduction on his or her income tax return only if the organization has been recognized as a §501(c)(3) organization by the Internal Revenue Service. Gifts to an individual, however, do not qualify as charitable donations, and the IRS does not allow a deduction.
Further, a donor may be responsible for a gift tax for gifts made to an individual during the calendar year. The gift tax may apply if a donor gives more than $13,000 to an individual in 2009. This number is periodically adjusted for inflation.
Generally, the beneficiary will not have to pay income taxes on the money you raise. This is because the money you raise is considered a gift to the beneficiary and gifts are not included in a person's taxable income. There are, however, exceptions to this rule, and you should consult an attorney or certified public accountant (CPA) if you have questions about them or any of the tax issues described here.
If the money is held in an account that generates interest or income, there may be a tax liability for that additional amount. Speak to the bank about setting up a non-interest bearing account, especially where the funds will not be held for too long a time. Otherwise, be aware that there may be taxes that will have to be paid.
Final notes
Depending on the kind of fundraiser you are planning, you may need to contact the Massachusetts Department of Revenue. For example, if you must hire and pay employees for the fundraiser, you should contact the Department of Revenue.
You should also check with your town to make sure there are no local regulations on the activity you are planning.
Raffles may be conducted ONLY by Massachusetts public charities which have been in existence for more than two years.
Always get approval from your bank before publishing anything that states that donors can mail donations for the "XYZ Fund" to "ABC Bank" at the bank's address. Keep in mind, too, that doing this causes you to lose the ability to know who has donated to the fund.
How to Set Up a Memorial Fund at a Bank
Source: https://www.mass.gov/service-details/fundraising-for-an-individual