Variance power in gift agreements, explained
By the Awarded team · Published · Updated
What is variance power in a gift agreement?
Variance power is a clause that lets the institution modify how a restricted gift is used if the original purpose becomes unlawful, impossible, impracticable, or wasteful, while staying as close as possible to the donor’s intent. Without it, changing an outdated restriction usually means finding the donor or their heirs to consent, or going through a legal process that can take months.
Why it matters
Endowed gifts are meant to last for generations. Over that time, majors close, programs are renamed, laws change, and criteria that made sense when the gift was made become impossible to meet. A variance clause gives the institution a defined, good-faith way to keep the fund working for its intended purpose.
What a variance clause typically says
Wording varies by institution and should come from your counsel, but most clauses cover the same ground:
- The conditions that trigger it: the purpose becomes unlawful, impossible, impracticable, or wasteful.
- That any new use will be as close as possible to the donor’s original intent.
- Whether the institution will consult the donor, if living, before making a change.
- Who at the institution can approve a modification.
If an agreement has no variance clause
Most US states have adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which describes the main routes for releasing or modifying a restriction:
- Donor consent. The donor agrees in writing, if they are living and reachable.
- Court approval. A court can modify a restriction that has become unlawful, impracticable, impossible, or wasteful, usually with notice to the state attorney general.
- Small, older funds. Many states allow an institution to modify a restriction on a small fund that has existed for many years after notifying the attorney general. Thresholds vary by state.
Each route takes time, which is why it pays to include variance language from the start and to find the agreements that lack it before you need it.
Protecting variance language
Variance power is one of the clauses gift officers and donors’ attorneys most often try to soften or remove. In GATO you can lock it in your templates: everyone, including the donor, sees that it is protected and why, and only the people you name can unlock it for a specific agreement. See clauses that cannot drift.
This guide is general information, not legal advice. UPMIFA and its thresholds differ by state, and other countries have their own rules; consult your general counsel.