Permanently Restricted Assets

What are Permanently Restricted Assets

Permanently restricted assets are funds of a nonprofit organization that must be used in designated ways and whose principal cannot be touched. The income that the principal amount earns goes toward funding the stated wishes of the donor(s). Donations of such assets are not uncommon, as individuals, groups or organizations making the donations may have certain preferences as to how the assets donated are used by the nonprofit entity.

BREAKING DOWN Permanently Restricted Assets

When accepted, donations are classified as unrestricted, temporarily restricted and permanently restricted. These assets are broken down on a nonprofit organization's Statement of Financial Position, which is equivalent to a balance sheet. Generally, the majority of donations to nonprofit organizations are unrestricted, which allows the organization to freely utilize the money as they see fit. Temporarily restricted assets come with strings attached — that is, they must be earmarked for certain purposes, but only until the expiration of the term stipulated by a donor.

The third type, permanently restricted assets, are usually related to a particularly large donation, the donor of which a majority of the time will specify the purpose of the money. The amount will be meaningful and intended to fund designated areas in perpetuity (i.e., "permanently"). A common type of permanently restricted asset is real estate. For example, an individual or organization may donate a large chunk of real estate to a nonprofit entity, such as a public university, with the restriction that the property only be used to house scientific research labs in perpetuity. The property can never be resold by the university for a capital gain.

Permanently Restricted Assets at the Mayo Clinic

The Mayo Clinic, one of the nation's premier hospital and medical research institutions based in Minnesota, defines permanently restricted assets as "those for which donors require the principal of the gifts to be maintained in perpetuity and provide a permanent source of income." In Mayo Clinic's Statement of Financial Position, these assets totaled almost $1.4 billion, approximately 60% of which was set aside for research and around 15% for education.