You have decided to give. The next question is quieter but just as important: should you say exactly what your money is for, or let the charity decide? That choice is the whole of restricted vs unrestricted funds, and it shapes what your gift can do for years.
A restricted gift comes with conditions the donor sets. An unrestricted gift comes with trust instead. Neither is better in every case, and both have a place.
This guide explains the difference in plain terms. It covers what a restriction asks of the nonprofit that accepts it, when a restriction is worth adding, how to word one so it still works decades from now, and how you point a gift at a specific fund at the Miami County Community Foundation.
Restricted vs unrestricted funds: the short version
A restricted fund is money a donor has limited to a stated purpose, a stated time, or both. An unrestricted gift can be spent on whatever the organization’s board decides serves its mission best.
| Restricted gift | Unrestricted gift | |
|---|---|---|
| Who decides how it is used | The donor, through the terms of the gift | The nonprofit’s board and staff |
| Typical wording | “For the scholarship program” or “for use after 2027” | “For general support” |
| What it is good for | A cause you care about specifically, or a memorial with a clear purpose | Whatever is most urgent, including rent, staff and the unglamorous work |
| The trade-off | Certainty for the donor, less flexibility for the charity | Flexibility for the charity, less control for the donor |
Restrictions come in two common shapes. A purpose restriction says what the money must support. A time restriction says when it can be used.
Since 2018, nonprofit financial statements have sorted money into just two groups under the Financial Accounting Standards Board’s update ASU 2016-14: net assets with donor restrictions and net assets without donor restrictions. That replaced an older three-way split. If you want to see how this shows up on paper, our guide to reading nonprofit financial statements as a donor or advisor walks through it.
One distinction trips people up. A board-designated fund is not a restricted fund. When a nonprofit’s own board sets money aside for a building or a reserve, that limit is self-imposed and the board can lift it. FASB asks nonprofits to disclose those board designations separately for exactly that reason.
What donor restricted funds mean for the nonprofit that receives them
If you run or keep the books for a small nonprofit, donor restricted funds are a promise you accepted along with the check. The money is yours to hold, but it is not yours to redirect.
In practice, that means three things:
- Track it separately. A restricted gift has to be followed from the day it arrives to the day it is spent on the stated purpose, so you can show the donor and your auditor where it went.
- Spend it only as agreed. A gift for a reading program cannot quietly cover a heating bill in a lean month, however tempting that is.
- Report the release. When you spend restricted money as intended, it moves out of the restricted column. Your books should show that it happened and why.
This is why experienced fundraisers read a restricted offer carefully before saying yes. The National Council of Nonprofits recommends a written gift acceptance policy partly so a board can turn down gifts with too many strings attached. A restricted gift you cannot honor is a liability, not a windfall.
Restricted funding also shapes what a small organization can do. Many foundations already give some flexible support. In Candid’s 2023 survey of large U.S. foundations, 90% gave at least some general operating support in 2022, and the typical foundation put 32% of its grant dollars there. That still leaves most foundation money tied to specific programs.
For the bookkeeping side, including how much cash you actually have free to spend, see our walkthrough of nonprofit accounting and the ratios that matter.
Restricted vs unrestricted donations: which should you give?
For a donor, the choice between restricted vs unrestricted donations comes down to one question: do you trust this organization to know its own needs better than you do?
An unrestricted gift is often the most useful thing a well-run nonprofit can receive. It pays for the work nobody photographs, like the bookkeeper, the insurance, and the staff time to write the next grant. If you know the organization and trust its board, a flexible gift lets them respond to what comes up.
A restricted gift makes more sense when:
- You care about one cause, not the whole organization. You want to support nursing students, not a hospital’s general budget.
- The gift is a memorial. Many of the funds held at the Miami County Community Foundation began after someone died. A clear purpose keeps that person’s name tied to something they cared about.
- You want the gift to outlast you. A named fund with a written purpose carries your intent forward after you are no longer there to explain it.
There is also a middle path. You can give to a cause rather than to a single organization, and let people close to the work decide which students or projects to support within it. That is how a named fund at a community foundation works.
One firm limit applies to everyone. Under IRS Publication 526, you cannot deduct a contribution earmarked for a specific person, even when it passes through a qualified charity. You can restrict a gift to a purpose or a group of people. You cannot restrict it to your niece.
How to word a restriction that still works in twenty years
A common mistake with a restricted gift is wording the restriction so narrowly that nobody can use it ten years later.
Picture a scholarship for “a Paola High School senior entering the nursing program at one named college.” If that program closes, the fund is stuck. Now picture one for “a Miami County student pursuing nursing.” That still honors the same intent, and it survives changes you cannot predict.
A well-scoped restriction usually names three things:
- The purpose, broad enough to outlive any one program or institution.
- Who is eligible, described as a group rather than a person, which also keeps you inside the IRS rule above.
- Who chooses, so the decision sits with people who know the candidates.
The Steve Pepoon Memorial Scholarship is a good local example. Pepoon was an Emmy Award-winning television writer and a Paola native. His $1,000 award is for a current Paola High School senior pursuing writing, screenwriting, playwriting, film, TV, media arts or theater, who shows creativity and an interest in storytelling, with a GPA of 2.5 or higher. That is specific enough to carry his name and broad enough to find a student every year.
The “who chooses” part matters too. The Jennifer Gander Memorial Scholarship, a $1,000 award for Osawatomie High School seniors, is chosen by teachers at the school at their discretion, because the family asked for it that way. The family set the purpose and handed the choice to the people who know the students best.
Before you sign, ask one more question: what happens if the purpose can no longer be met? A good fund agreement answers that in writing, so nobody has to guess.
How to direct a gift to a specific fund in Miami County
If you are ready to give to a specific cause in Miami County, the Foundation makes the choice simple. Twelve funds are held here: eleven named funds plus the Foundation’s own general fund. You can read what each one supports on the page listing every fund held at the Miami County Community Foundation.
There are two ways to point your gift at the fund you choose:
- Online. Click the Donate Now button on any page and pick the fund from the drop-down. Nine of the twelve funds can be given to this way.
- By check. Make the check payable to the Miami County Community Foundation and write the name of the fund in the memo line. Mail it to 702 Baptiste Dr, Paola, KS 66071. The other three funds take a check or a phone call.
Please do not make a check payable to the fund itself. The Foundation is the charity; the fund name in the memo line is what directs your gift.
If you would rather not pick a cause, the general fund is the one the Foundation’s funds page describes as the choice “when you would rather the county decided.” The Foundation’s guide to giving to a fund covers the other ways to give, from wills to retirement plans.
If no existing fund fits, you can start your own. An endowed fund starts at $10,000 and stays invested; its balance cannot fall below what was put in, and only its earnings are spent. An expendable fund starts at $1,000 and can be spent down to zero, after which it closes. Setup takes seven to ten business days. The page on starting a scholarship fund at the Foundation explains both options.
Individuals, families, businesses and churches all hold funds here. The Bill McNatt scholarship, for example, was established by the Louisburg United Methodist Church after he died in May 2025, to honor the years he spent mentoring young people in its youth group.
FAQ: restricted and unrestricted funds
Can a nonprofit use restricted funds for something else?
Not on its own say-so. A nonprofit that accepts a restricted gift is expected to spend it on the purpose the donor set. If the purpose becomes impossible, the organization should go back to the donor, which is why a written fallback in the gift agreement saves everyone trouble.
Is a scholarship fund a restricted fund?
Usually, yes. A named scholarship is limited to a purpose, such as nursing or the arts, and often to a group of students, such as seniors at one school. It cannot be restricted to one named student if you want the gift to be deductible.
What is a board designated fund?
It is money a nonprofit’s own board has set aside for a purpose, such as a reserve or a building project. It looks like a restriction, but the board created it and the board can change it. A donor restriction was set by someone outside the organization, so the board cannot simply lift it.
Are unrestricted donations better?
For a nonprofit you know and trust, an unrestricted gift is often the most useful one, because it covers the costs grants rarely do. A restricted gift is better when you care about one cause specifically or want a memorial with a clear purpose.
Restrictions are often written into a planned gift, and an endowment is one way to make a restricted gift permanent.
Conclusion
The choice between restricted vs unrestricted funds comes down to who you trust to decide: yourself, now, or the people doing the work later.
You can also do both: give a flexible gift to organizations you know well, and a restricted gift, often a named fund, for the one cause you want your name attached to. The best restriction names a purpose, describes a group, and says who chooses. Then it leaves room for the future.
If there is a cause in Miami County you want your gift to serve, browse the funds held at the Foundation and pick the one that fits, or call (913) 404-7287 to talk through starting your own.
