A roadmap for donors and charities in this challenging economy
Charitable pledges and restricted gifts continue to serve as common means of supporting favored causes. Given the significant capital invested through such gifts, the need for deliberate planning and comprehensive negotiation becomes more important in light of the unpredictable economy. Let's explore the potential issues that may arise during these negotiations from the perspective of both the donor and the charity.1
While donors who give through a donor advised fund (DAF) can't use DAF distributions to fulfill legally binding pledges, they may avail themselves of the DAF sponsor's resources in negotiating and managing a structured, long-term gift. I'll feature the Private Donor Group of Fidelity Charitable2 in several case studies to illustrate this point.
Essentially, a charitable pledge constitutes a contract between a donor and a charity in which the donor promises to make a contribution to the charity in the future. Both donors and charities have financial, legal and tax issues to consider.
Financial considerations — Charitable pledges provide the dual benefit of current recognition and deferred payment. Recent examples include Raymond G. and Ruth Perelman's $225 million pledge this year to the University of Pennsylvania and Warren Buffett's contribution last year of approximately $1.6 billion in Berkshire Hathaway class “B” stock to the Bill & Melinda Gates Foundation, towards Buffett's 2006 pledge of 10 million shares.3
The immediate gratification and recognition from making a pledge, however, shouldn't outweigh the fiscal impact of satisfying this obligation in the future. With the market volatility and economic uncertainty experienced this year, donors should undergo comprehensive financial planning to stress-test a potential pledge obligation against current and future cash flow needs. Since the pledge reflects an obligation over the course of time, donors should also account for any current and anticipated needs in providing for family members, both young and old.
This due diligence of a donor's own financial profile remains critical, because donors can't satisfy their pledges with distributions from a DAF or their private foundation (PF), as doing so constitutes a prohibited benefit and self dealing, respectively.4 However, for 2011, unless legislation provides otherwise, those donors over the age of 70½ may use an individual retirement account charitable rollover of up to $100,0005 and, as a result, satisfy existing pledges through such IRA distributions (and not their DAF account).6
Legal considerations — Since contract law and its interpretation vary by state, so does the enforceability of charitable pledges.7 In discerning the common law elements of offer, acceptance and consideration, courts may find that a pledge agreement clearly reflects a donor's offer to make a gift and a charity's acceptance of that offer. The existence of consideration, however, may not be as apparent, particularly if a charity doesn't promise any action in return.8
In the absence of explicit consideration, a charity may argue, under the doctrine of promissory estoppel, that it detrimentally relied on the donor's pledge, therefore warranting enforcement on equitable grounds.9
Alternatively, a court might enforce a charitable pledge based on public policy without consideration or reliance.10 Indeed, the Restatement (Second) of Contracts reflects this stance.11
Given that a charity may expend significant time and resources in court debating the enforceability of a pledge, donors should treat any pledges they make as binding financial commitments for their own planning purposes, to map out their own wealth planning steps and cash flow projections. Donors should also remember that upon death, an unfulfilled pledge constitutes a potential claim against the decedent's estate,12 possibly affecting the amount received by the donors' heirs.
Tax considerations — For income tax purposes, taxpayers can only deduct pledge amounts in the year of fulfillment, not in the year the pledge is made.13 While satisfying a debt with appreciated property generally results in gain recognition, the IRS has ruled that satisfying a charitable pledge with appreciated property does not.14
For any outstanding pledges upon death, only enforceable pledges qualify for an estate tax deduction as a claim against the estate.15 Alternatively, a client's will may contain a direction to pay all outstanding charitable pledges “whether enforceable or not;” this directive potentially qualifies for an estate tax charitable deduction.16 However, some donors may not wish to include such broad language out of concern for inaccurate claims by charities.
Like the donor, a charity has certain issues to consider in the context of a pledge. Charities must address their financial exposure, enforcement policies and gift acceptance procedures.
Financial considerations — For charities, donor pledges provide the benefits of increasing donor engagement and motivating other potential donors.17 However, during market downturns, donors are more likely to postpone, cancel or reduce their charitable pledges.18 These delays or cancellations, particularly for capital projects, can directly impact the current operation and future funding of a charity. Accordingly, charities shouldn't base their budgets or expansion plans too heavily on pledges, since such reliance can place the charitable institution at risk. To reduce their financial exposure, charities may consider clarifying and enforcing their policies on how much of a pledge they must have in hand before moving ahead with new buildings or programs.19
Enforcement considerations — In deciding whether to enforce payment of an unpaid pledge, the charity and its board must consider several factors.
On one hand, the board has a fiduciary duty to preserve the charity's assets.20 In addition, if a board member or a substantial contributor21 who made a pledge wishes to revise the pledge agreement in any way that reduces the amount of the pledge, such an accommodation may constitute an excess benefit, subject to an intermediate sanction against such individual and possibly the “organization manager” as well.22 As a matter of policy, any member of the board of directors who has an outstanding pledge to the charity should disclose that information to the rest of the board and recuse himself from any discussion or specific decision regarding the enforcement of pledges.
On the other hand, the adverse effect on donor relations, unwanted publicity and legal costs in pursuing payment of a pledge may account for a board's decision not to seek enforcement. If a board decides not to enforce a pledge, it should carefully document its decision and its reasons in the minutes and/or in a resolution.
Gift Acceptance Policies
As a starting point in considering pledges, donors should request and review a charity's gift acceptance policy. This document may already set the parameters for acceptable pledges. Issues covered may include the minimum gift amount; the maximum length of the payment period; naming and publicity guidelines; and the pledge enforcement policy and procedure. A charity's existing policy can inform donors in structuring their own pledge to the charity.
A donor may wish to consider alternatives to traditional pledges. These include:
Letter of intent — Unlike an enforceable pledge, a letter of intent, as implied by the term, reflects a donor's plan for future gifts, but doesn't constitute a legally binding obligation. As a result, a donor and the charity may negotiate a subsequent change in the letter of intent without legal, fiduciary or accounting implications.
The following case study illustrates how a DAF can help effect a letter of intent on a donor's behalf:
Bay Area hospital project: A Bay Area entrepreneur sells his company and funds a DAF with over $15 million. He becomes excited to embark on a series of philanthropic projects now that he has the time. In particular, he seeks to fund a new center at a hospital. The center will focus on research and clinical work for a disease that has impacted the donor's family and many others.
The donor introduces his DAF specialist to the major gifts officer with whom the donor and his wife have been working. Since DAF distributions can't satisfy any pledges, the DAF specialist provides the major gifts officer with a letter of intent, notifying the charity that the donor intends to recommend that the DAF sponsor make grants in the amount of $1 million per year, for the next five years on specified dates to support the new center. The DAF specialist sets up a recurring grant recommendation such that, if approved, the grant will be sent automatically on the specified date each year for the next five years.
Note: Larger charities often have their own template letter for donors who wish to provide funds through a DAF.
Revocable enforceable pledge — Donors may consider an enforceable pledge that allows a charity to file a creditor's claim to collect a pledge if the donor dies, but maintains the pledge's revocability during the donor's life.23
Whether donors choose to contribute assets immediately or in the future, many seek to impose certain conditions and restrictions on their gifts to effect their specific intent.
Before proposing a specific project, like the construction of a facility or a scholarship program, donors should confer with the charity to ensure that they align with the charity's institutional needs and priorities. Supporting an existing initiative or project may involve less administrative burden for the charity and lead-time for the donor.
Understanding a charity's long-term priorities becomes especially important with large capital projects. The process of improving, renovating, replacing and adding buildings continues beyond a donor's lifetime, and projects may change or halt, depending on changes in administrative leadership.
If a donor conditions a gift upon a certain event or act (occurring before or after a gift), the Treasury regulations still allow the donor a deduction if the charity's possibility of forfeiting the gift is “so remote as to be negligible.”24 For example, assume a donor transfers land to a city government for as long as the land is used by the city for a public park. If, on the date of the gift, the city plans to use the land for a public park and the possibility that the city won't use the land for a public park is so remote as to be negligible, the donor is entitled to a charitable deduction.25
While a restriction on a donation doesn't necessarily disqualify the charitable deduction, it may reduce the value of the contribution, as it may very well affect the marketability of the assets transferred.26 Accordingly, donors should consult with counsel on the valuation impact, if any, of a restriction on the contribution amount.
In discussing a potential restriction, particularly a perpetual one, both a donor and the charity should consider the practical implications of complying with the restriction indefinitely. (In the case of charitable easements, both the donor and the charity have the common goal of permanently restricting the use of the real property for conservation, so conflicts may not necessarily arise.)
There are numerous case law examples of restrictions or conditions that charities failed to honor, whether due to program changes of the charity itself or fiscal pressures.27 In many cases, a lack of communication between the charity and the donor's family aggravated the situation and escalated to litigation.28
Therefore, both flexibility within a gift agreement and active donor stewardship remain critical to minimize conflict as circumstances change. Towards this end, a gift agreement may incorporate contingency plans such as alternate uses for the gift at the same institution or a transfer of the assets to another charity. An agreement may also allow the charity to propose alternate solutions under certain circumstances.
In drafting a gift agreement, a focus on the donor's long-term mission, as opposed to a specific condition, will help inform the charity's options in responding to future events.
Visibility vs. Anonymity
Depending on their motivations, donors may choose to maximize or minimize the publicity that can accompany a major gift.
Donors who seek naming rights for a particular capital project should consider its potential lifespan due to potential obsolescence. Walls, rooms and other internal structures remain particularly apt to change over the course of time, as other donors seek to leave their legacy. To avoid any misunderstanding or surprises, a donor and charity should clarify their respective expectations on name placement and other logistics before signing the gift agreement.
To ensure full receipt of a donor's contribution, a charity may withhold naming until gift completion or remove the name if a donor fails to complete the gift. The charity's gift acceptance policy may reflect such a protocol.
Moreover, in light of any future change in a donor's reputation, a charity may provide, either in its acceptance policy or the agreement, the right to remove the donor's name upon any damage to the charity's reputation. Gift acceptance policies often explicitly address this situation, given the many falls from grace of prominent philanthropists.29
Donors who seek to preserve their anonymity should confirm with the charity what information, if any, remains subject to public disclosure under a particular state's “sunshine laws,” which require public access to the meetings and records of certain government-funded institutions.30
The following case study illustrates how a DAF can serve as a buffer in negotiating structured gifts on behalf of anonymous donors.
Second-generation philanthropist: A donor and his siblings inherited a large PF from their parents and chose to dissolve the PF into DAF accounts. The donor is very low key, works in the non-profit sector and spends much of his time volunteering with inner-city youth organizations. He plans to support one charity in particular at a significant level over the next few years so that it can build a new community center in a low-income neighborhood; the community center is “in the works” but needs major fundraising commitments before breaking ground. The donor, however, doesn't want recognition for this gift. He doesn't want the charity staff or other volunteers to know he's funding the project, and he also wants to avoid solicitations from other charities. By coordinating through his DAF specialist, the donor is able to anonymously notify the charity that a donor intends to recommend grants to them at a certain level over the next several years on specified dates to support the new community center.
The charity was thrilled for the support, yet disappointed that it wasn't able to work more closely with the donor and engage him through each step. Also, as a smaller organization, the charity isn't as familiar with DAFs and was initially hesitant to consider this a serious commitment. After a series of conversations with the right staff members, the charity became comfortable with the donor's project.
Types of Negotiated Gifts
There are several specific types of negotiated gifts. These include:
Capital projects — Given the vast amount of resources and coordination required for physical facilities, donors and charities should agree in advance on: 1) who pays for which portion of the design and construction costs, long-term operating and maintenance costs and costs of interim moves; 2) the payment schedule; and 3) the plan for addressing cost overruns and schedule delays.
Scholarship and curriculum conditions — In funding higher education, a tension often exists between effecting donor intent and maintaining an institution's academic independence. The widely debated dispute between Texas billionaire Lee M. Bass and Yale University illustrates this tension.31 In 1991, Bass donated $20 million to Yale specifically to expand its Western civilization curriculum, to counter a focus on multi-cultural content. Yale ultimately returned the money at Bass' request after Yale failed to meet various conditions he had set, including his advance approval of the instructors who would teach the new courses. The lawsuit between Princeton University and the William Robertson family reflects a similar conflict over an educational purpose expressed by the donor.32
Since donor relations play a key part in avoiding litigation, a donor and charity should agree on a stewardship plan to implement regular communication with the donor and successive family members.
Donors may potentially establish scholarship programs either directly with a charity or through a DAF. In either case, the donor may serve on a selection committee, but he can't control it.33 In addition, the DAF must award the grant pursuant to procedures approved in advance by the governing board of the sponsoring organization.34
Donors may establish scholarship programs through a PF, which then bears the administrative onus for avoiding treatment of the grants as taxable expenditures.35
The following case study illustrates how a DAF can identify scholarship providers that align with a donor's goals.
Educational assistance: A donor with a PF that focused on education was looking for a way to support scholarship programs at various parochial schools across the country. The donor decided to open a DAF account with a smaller sum to start, but requested assistance from his DAF specialist to vet certain organizations and ensure that the grants could be made from his DAF to these schools over multiple years.
The donor introduced the executive director of his PF to his DAF specialist and asked that they work together to coordinate and execute these grants. The executive director provided the DAF specialist with specific contacts at various schools (principals, guidance departments and development offices), and the DAF specialist coordinated the research efforts to ensure that these schools administered scholarship programs in accordance with Internal Revenue Service guidelines and that the schools could accept multi-year gift intentions from DAFs.
Once the due diligence was completed, the donor recommended the grants and was so pleased with the simplicity of the process that he contributed additional funds to his DAF account and plans to contribute more before the end of the year to support his future intentions.
Note: For grants to more established schools, in which the faculty and staff were very familiar with how to handle scholarship grants, the due diligence took much less time. However, certain smaller schools, which didn't have as much experience handling scholarship grants, required multiple conversations with various individuals, resulting in a lengthier due diligence process.
Donors of art often have a clear idea of how, where and when to display it. In exploring a proposed donation of art, donors should check if their expectations are consistent with a museum's mission and program areas.36 If the donor desires, the parties should assess the viability of a permanent display of the donated art and continued exhibition of the collection as a whole, as well as the available funding and capacity to maintain the collection and any specific display site.
In a private letter ruling, the IRS has demonstrated that it can accept a number of conditions imposed on a donation of art without reducing the value of an estate tax charitable contribution, as long as a museum has the unrestricted right to loan and sell the art to acquire other works consistent with its mission.37
The Barnes Foundation art collection litigation serves as, perhaps, the most well known example of the challenges of effecting donor intent with respect to art. Albert C. Barnes established a PF in 1922 to maintain and display a collection of widely acknowledged masterpieces, now collectively worth $25 billion,38 in Merion, a suburb of Philadelphia.39 Barnes stipulated in the PF's charter and bylaws that the artwork must always be displayed exactly as he arranged it at the original site.40 Decades later, the PF, citing financial difficulties, petitioned for and ultimately received court permission to amend the bylaws so that it could move the collection to a new site and attract more visitors and financing.41 The court decision raised vociferous objections in the art world, with some arguing that moving the location would destroy the unique experience in viewing the art in its intended site.42 In August 2011, Judge Stanley Ott of the Montgomery County Orphans' Court approved a new hearing based on the assertion of incomplete facts in 2004, when he initially approved the collection's move to a new home.43 Donors who seek a specific display location in perpetuity may consider donating additional funds to market and maintain a collection if admission revenues become insufficient.
Failure to Comply
What happens if a charity doesn't fulfill a donor's condition or restriction? Here are the possibilities:
Reverter clauses — Gift agreements may provide for the donated property to revert back to the donor or his estate if the charity doesn't fulfill a stated condition.44 Two factors negate the appeal of this approach. First, the tax benefit rule requires a taxpayer to include as income all amounts that represent the return of items deducted in earlier years.45 Second, reversionary provisions will jeopardize a charitable deduction, unless the reversion is “so remote as to be negligible.”46
Alternative purpose or beneficiary — If a charity fails to comply with a donor's condition or restriction, the donor may prescribe in the gift agreement either an alternate purpose of the gift or an alternate charity.47 Ideally, the charity would qualify under all of the income, gift and estate (for U.S. residents and non-residents) tax charitable deduction sections.
Standing to enforce agreement — In the absence of a reverter clause or alternate disposition, donors and their families have asserted the right to enforce a donor's original intent as expressed in the gift agreement.48 Courts have held that only the state attorney general has standing to sue charitable organizations on behalf of the public and to enforce restrictions imposed by donors on their gifts to the nonprofits.49 However, in the last decade, courts have extended standing to the donor's descendants in certain circumstances.50
To clarify this issue in advance, the gift agreement should specify who has standing (whether the donor, estate and/or family members) to enforce the agreement. The respective counsels of the donor and charity should also refer to prevailing state law in addressing this issue.
Modifying gift restrictions — To minimize any chance of future litigation, a donor and charity may proactively agree on the terms of modifying gift restrictions. Otherwise, as demonstrated by the Barnes case, the parties may have to seek a judicial resolution, relying on the prevailing case law of the relevant jurisdiction.
Note that for trusts, the common law doctrine of cy pres allows for modification of a trust's express terms when those terms are impossible, illegal or when unforeseen changed circumstances mean that the original terms now “defeat or substantially impair the accomplishment of the purposes of the trust.”51 Courts have previously resisted this judicial route, to limit any deviation from donor intent as much as possible.52
In addition, statutory provisions provide default rules under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), for the modification of restrictions on charitable funds.53 UPMIFA, enacted in most states,54 updates prior law in various investment and expenditure areas, most significantly eliminating the “historic dollar value” limitation on expenditures from endowment funds.55 As a result, institutions are no longer limited in their ability to spend from “underwater” endowment funds (that is, those with assets having current values that are less than the values when they were given). A charity may need this flexibility to maintain its operations during periods of market decline or volatility.
UPMIFA also provides more detailed guidance on restrictions on charitable funds. Sometimes a restriction imposed by a donor becomes impracticable, wasteful or may impair the management of a fund. Under UPMIFA, a donor may consent to release the original restriction.56 If the donor isn't available, the charity can ask for court approval of a modification of the restriction.57
An institution seeking court release of a restriction must provide notice of the application to the attorney general, with an opportunity for the attorney general to respond.58 UPMIFA clarifies that the doctrines of cy pres and deviation apply to funds held by non-profit corporations as well as those held by charitable trusts.59
Moreover, the charity has a remedy if a fund is less than $25,000 in value (this threshold may vary by state), over 20 years old and the charity determines that a restriction on the management, investment or use of the fund is unlawful, impracticable, impossible to achieve or wasteful. The charity may notify the state charitable regulator, wait 60 days, and then, unless the regulator objects, modify the restriction in a manner consistent with the charitable purposes expressed in any documents that were part of the original gift.60
Given the external intervention that could occur pursuant to UPMIFA, donors and charities may wish to address as many contingencies as possible in their own gift agreement.
Choice of Law
As reflected above, the statutory and case law governing gift agreements vary by state and therefore warrant careful review by counsel of which governing law to specify in the agreement.
— Credit Suisse Securities (USA) LLC (“CSSU”) does not provide tax or legal advice. We urge you to consult with your own tax or legal advisors to ensure proper interpretation and application of all legislation, laws, rules and regulations and to obtain advice specific to your personal financial situation. This information is for educational purposes only and is intended to provide a general overview of the topics discussed. Information and opinions expressed by us have been obtained from sources believed to be reliable. CSSU makes no representation as to their accuracy or completeness and CSSU accepts no liability for losses arising from the use of the material presented. References to legislation and other applicable laws, rules and regulations are based on information that CSSU obtained from publicly available sources that we believe to be reliable, but have not independently verified.
- The author gratefully acknowledges the assistance of Alvina Lo, vice president, Private Banking USA, Credit Suisse Securities (USA) LLC, and Meredith H. Celentano, assistant vice president for development and alumni affairs, Hofstra University, New York.
- Private Banking USA, Credit Suisse Securities (USA) LLC participates in the Charitable Investment Advisor Program of Fidelity Charitable, which allows qualified independent investment advisors to provide investment management services for the charitable assets held in their clients' donor advised funds (DAFs).
- Maria Di Mento, “U. of Penn. Medical School Gets $225-Million Pledge,” The Chronicle of Philanthropy, May 13, 2011, http://philanthropy.com/article/U-of-Penn-Medical-School/127505/; Maria Di Mento, “Buffett, Gateses, and Turner Made Big Payments on Past Pledges in 2010,” The Chronicle of Philanthropy, Feb. 6, 2011, http://philanthropy.com/article/Buffett-GatesesTurner/126209/.
- The Internal Revenue Code imposes a penalty on grants from a DAF that result in a donor's “receiving, directly or indirectly, a more than incidental benefit as a result of such distribution.” IRC Section 4967(a)(1); see also IRC Section 4958; Treasury Regulations Section 53.4941(d)-2(f)(1). Any amount repaid as a result of correcting an excess benefit transaction may not be held in any DAF. IRC Section 4958(f)(6).
- Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (P.L. 111-312), Section 725(b)(1).
- Notice 2007-7, 2007-5 I.R.B. 395, Q & A 44. Internal Revenue Service Information Letter Number 2010-0204 (Sept. 24, 2010).
- Conrad Teitell, Outright Charitable Gifts, “Pledges,” Section 1.23(D) (CCH Intelliconnect Library, Aug. 30, 2008).
- Richard M. Horwood and John R. Wiktor, “Charitable Planning: Troubled Gifts in Troubled Times,” 51 BNA Tax Management Memorandum 19 (Jan. 18, 2010).
- Lisa M. Rossmiller and Brent C. Gardner, Jr., “All That Glitters Is Not Gold — Entering Into and Enforcing Charitable Pledges in Texas,” The Texas Tax Lawyer, Vol. 37, No. 2 (Winter 2010).
- Restatement (Second) of Contracts Section 90(2) (1981).
- The holder of a contractual pledge may pursue the remedies of a creditor. Uniform Probate Code (UPC) Section 3-715, Comments. Also, unless otherwise provided by a will, a personal representative may satisfy written charitable pledges of the decedent regardless of whether the pledges constituted binding obligations of the decedent or were properly presented as claims, if in the judgment of the personal representative, the decedent would have wanted the pledges completed under the circumstances. UPC Section 3-715(4).
- IRC Section 170(a)(1).
- Revenue Ruling 55-410, 1955-1 C.B. 297; cf. Rev. Rul. 83-75, 1983-1 C.B. 114, which ruled that a charitable lead trust realized gain on distribution of property in kind, in satisfaction of its charitable annuity; PLR 200920031 (Jan. 26, 2009) (concerning a grantor charitable lead trust distribution in kind).
- IRC Section 2053(a)(3); Treas. Regs. Section 20.2053-5(a); Estate of Sochalski v. Comm'r, 14 T.C.M. (CCH) 72 (1955); Estate of Levin v. Comm'r, 69 T.C.M. 1951 (CCH) (1995).
- See generally IRC Section 2055.
- In general, charities are required to record unconditional pledges as assets when made. See Financial Accounting Standards Board (FASB) Statement No. 116.
- Kathryn Masterson, “As Pledges Fall Short, Colleges Face the Music,” The Chronicle of Philanthropy, Oct. 8, 2010, http://philanthropy.com/article/As-Pledges-Fall-Short/124873/.
- See Uniform Trust Code Section 809.
- For purposes of the excess benefit excise tax, the term “disqualified person” may include board members and substantial contributors (that is, those who have donated more than $5,000 to the organization, if such amount is more than 2 percent of the total contributions and bequests received). IRC Section 4958(f); Treas. Regs. Sections 53.4958-3(c), (e)(2); IRC Section 507(d)(2).
- IRC Section 4958(c)(1)(A); Treas. Regs. Sections 53.4958-3(c), 53.4958-3(e)(2). The IRC imposes a 25 percent initial excise tax on a disqualified person who engages in an excess benefit transaction with an applicable tax-exempt organization. See IRC Section 4958(a)(1). It also imposes a second-tier excise tax of 200 percent if the excess benefit transaction isn't corrected within the applicable correction period. IRC Section 4958(b). Finally, the IRC imposes a 10 percent excise tax, up to a maximum of $10,000 per transaction, on an organization manager who knowingly participates in an excess benefit transaction. IRC Section 4958(a)(2). The regulations outline the operation of these three excise tax provisions.
- For sample language for a revocable enforceable pledge option, see Reynolds T. Cafferata, “Should Pledges be Enforceable? And Other Questions To Ask About Gift Agreements,” Journal of Gift Planning (March 2007) at pp. 16-47.
- Treas. Regs. Section 1.170A-1(e); Richard Fox, “Planning for Donor Control and Other Strings Attached to Charitable Contributions,” Estate Planning (September 2003) at p. 441.
- Treas. Regs. Section 1.170A-1(e). See also Rev. Rul. 2003-28, 2003-11 I.R.B. 594.
- Rev. Rul. 85-99, 1985-2 C.B. 2 83; Fox, supra note 24.
- Kathryn W. Miree and Winton C. Smith, Jr., “The Unraveling of Donor Intent,” Trusts & Estates (December 2009) at p. 44.
- Alan F. Rothschild Jr., “Planning & Documenting Charitable Gifts,” American Bar Association GP/Solo Law Trends & News, September 2007, www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/planningcharitablegifts.html.
- See, e.g., Florida Government-in-the-Sunshine Manual (Jan. 14, 2011), www.myflsunshine.com/sun.nsf/sunmanual/A342F688127D5AFD852566F30055F8C8.
- Jacques Steinberg, “Another Bass Gives Yale $20 Million,” The New York Times, May 11, 1996.
- Victoria B. Bjorklund, “Robertson v. Princeton — Perspective and Context” (January 2008), www.princeton.edu/robertson/documents/docs/Nonprofit_Forum.pdf.
- Joint Committee on Taxation, “Technical Explanation of HR 4, the Pension Protection Act of 2006,” at 345.
- The IRC imposes an excise tax on all DAF distributions to natural persons. IRC Section 4966(c)(1)(A). However, for purposes of this rule, a DAF doesn't include a fund or account with respect to which a donor or donor advisor provides advice as to which individuals receive grants for travel, study or other similar purposes, as long as: (1) the donor's or donor advisor's advisory privileges are performed exclusively by such donor or donor advisor in such person's capacity as a member of a committee all of the members of which are appointed by the sponsoring organization; (2) no combination of a donor or donor advisor or persons related to such persons, control, directly or indirectly, such committee; and (3) all grants from such fund or account are awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the board of directors of the sponsoring organization and such procedure is designed to ensure that all such grants meet the requirements described under IRC Section 4945(g) (concerning grants to individuals by PFs). IRC Section 4966(d)(2)(B)(ii).
- Treas. Regs. Section 53.4945-4(a)(3).
- Among other requirements for a full fair market value (FMV) deduction for art contributions, the charity must use the work in a manner related to the charity's tax-exempt purpose. IRC Section 170(e)(1)(B)(i). If a donor contributes a fractional interest in a work of art to a charity, the income tax charitable deduction generated by that contribution (plus interest) will be recaptured, unless the donor contributes all of his remaining interests in that property to the charity within 10 years after the date of the initial fractional contribution or by the date of the donor's death, if earlier. IRC Section 170(o)(3)(A)(i). Moreover, if the value of the work of art has appreciated between the date of the first fractional contribution and the date of the subsequent fractional contribution, the donor's income tax charitable deduction for the subsequent contribution is determined by reference to the work's FMV at the time of the first contribution. IRC Section 170(o)(2). For these reasons, gifts of fractional interest in art remain unappealing under current federal tax law.
- PLR 200202032 (Oct. 26, 2001). In addition to seeking certain title documentation from the donor, the charity should thoroughly research the provenance of all proposed acquisitions and take every reasonable precaution to ensure that it can acquire valid title.
- Katya Kazakina, “Barnes $25 Billion Art Trove, Boardroom Fight Drive Documentary,” Feb. 26, 2010, www.bloomberg.com/apps/news?pid=newsarchive&sid=awPQIYh04ySs.
- Ilana H. Eisenstein, “Keeping Charity in Charitable Trust Law: The Barnes Foundation and the Case For Consideration of Public Interest in Administration of Charitable Trusts,” 151 U. Pa. L. Rev. 1749 (2002-2003).
- Barnes Foundation, http://topics.nytimes.com/top/reference/timestopics/organizations/b/barnes_foundation/index.html.
- In re Barnes Foundation, No. 58,788 (Pa. Com. Pl. Dec. 13, 2004).
- See supra note 40.
- Joann Loviglio, “Judge Hears New Round of Arguments Over Planned Move of Barnes Art Collection to Philly,” Associated Press, Aug. 1, 2011, http://foundationcenter.org/pnd/news/story.html?id=347900020. The petition alleges professional misconduct on the part of then-Attorney General Michael Fisher in 2004, as reflected in the documentary “The Art of the Steal,” www.barnesfriends.org/download/fbf_060911_judge_ott_orders_briefs_oral_arguments.pdf.
- Treas. Regs. Sections 1.170A-1(e); 1.170A-7(a)(3). Heather J. Rhoades, “Charitable Gifts With Use Strings Attached,” Trusts & Estates (October 2010) at p. CGS 14.
- IRC Section 111(a).
- Treas. Regs. Sections 1.170A-1(e); Robert Madden, Tax Planning for Highly Compensated Individuals, Section 4.03, “Charitable Bequests” (3d ed. (1997 & Supp.) May 2011).
- See, e.g., PLR 200418002 (Jan. 23, 2004).
- See Miree and Smith, supra note 27.
- See ibid. and Rhoades, supra note 44.
- Winton C. Smith, Jr., “Power to the Donors,” Trusts & Estates (October 2007) at pp. 66-71.; Winton C. Smith, Jr., “Score One for Donors,” Trusts & Estates (March 2008) at p. 66.
- Charles E. Rounds, Jr. & Charles E. Rounds, III, A Trustee's Handbook, Section 9.4.3, “Cy Pres” (December 2010); Eisenstein, supra note 39, citing Restatement (Second) of Trusts Section 381 (1959).
- Eisenstein, supra note 39 at p. 1768.
- In 2006, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) replaced the Uniform Management of Institutional Funds Act, promulgated in 1972. UPMIFA, Prefatory Note, www.law.upenn.edu/bll/archives/ulc/umoifa/2006final_act.pdf.
- Legislative Fact Sheet, http://uniformlaws.org/LegislativeFactSheet.aspx?title=Prudent%20Management%20of%20Institutional%20Funds%20Act.
- UPMIFA Section 4 Comment.
- UPMIFA Section 6(a).
- UPMIFA Section 6(b).
- UPMIFA Section 6(c) Comment; Section 2(4) Comment.
- UPMIFA Section 6(d).
Julia Chu is head of philanthropy and a director at Private Banking USA, Credit Suisse Securities (USA) LLC in New York