I would start by drafting  a letter to the donor explaining exactly how
your storage preserves the object for future use and study and that you are
doing all you can to care for it.  Explain what benefit it is to the museum
(research, future display etc.).
Express sincere gratitude for the gift.
Also, make sure the donor agreement didn't say anything about how the item
would be used, or if it did, be sure you comply and the donor knows how you
comply.
Never act towards the donor in any way as though returning the item is a
consideration, or that higher-ups would consider it.

Your worry may be moot, as with some state agencies, deaccessioning is
nearly impossible, and you can't just give something back, because state
laws regulate how you get rid of something.

Another option of course is to display the item.  You said this was not an
option for "obvious reasons" but the only actual reason you stated was that
you didn't have room.  That means it is more important to the mission of
your museum to display other things.  Perhaps you should reconsider where
this donation fits in your mission.  Also, surely you have a rotating
gallery of some sort.  I have known several institutions which have every
few years a display of artifacts donated by local residents in the past few
years.  I think this works very well.

Try to put yourself in the donor's shoes.  He or she gave the object
because his/her home was not a good forum to show it or storage for it, but
it was something worth preserving.  You've stuck it in a box in a back
closet for all he knows, or worse put it up on e-bay (the public doesn't
really know how museums work, and don't want to be lectured on it).  The
donor wants others to enjoy this item.  That's why he/she gave it.  Make
every effort to let the donor know that people will enjoy this item when it
will eventually be put to use, and hopefully that will be within the
donor's life time.  This is particularly a concern if the donor is ill or
of an advanced age.

That's my opinion.
Vincent
Vincent T. Lyon
Robert Crown Law Library
Stanford University
650-724-6454
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