Gift restrictions have always been a component of charitable gift planning. In 1643, Lady Anne Radcliffe Mowlson created the first scholarship at Harvard College. In 1887, Josephine Louise Le Monnier Newcomb contributed $100,000 to establish the Sophie Newcomb College at Tulane University, the first self-supporting American women's college associated with a men's school. During the Industrial Age, families such as the Rockefellers, Carnegies, and Fords made gifts to address specific social issues, establish libraries, or for other directed purposes.

Donors' gift restrictions continue to this day. In 2004, McDonald's heiress Joan B. Kroc left $1.5 billion to the Salvation Army, calling for the nonprofit to establish community centers across the country. And, this year, J. Ronald Terwilliger, head of the largest developer of multi-family housing in the United States (Trammell Crow Residential), announced that he's committed to leaving $100 million to Habitat for Humanity International — and that 70 percent of his bequest is to be dedicated to microfinancing for housing.

While gift restrictions are not new, the increasing number of lawsuits filed by donors and their families to enforce gift intent is. By any measure, high profile lawsuits such as the recently settled battle between the Robertson family and Princeton University as well as the still-unresolved dispute between the Newcomb heirs and Tulane, damage philanthropy by leaving donors uncertain if their wishes will be honored after they're gone.

The good news is that this litigation trend can be stemmed if gift planners have a better understanding of which problems spark lawsuits and if donors and charities better understand the alternatives in resolving disputes.

Five Key Cases

The last 10 years have yielded a number of cautionary tales that highlight the issues in gift purpose litigation. While there are many more lawsuits involving conflicts between donors (or descendants of donors) and the charities they support, five cases provide some perspective for the issues involved in this litigation. In no particular order, they are:1

  • William Robertson v. Princeton University2 — Charles S. and Marie H. Robertson3 contributed $35 million in A & P stock to Princeton in 1961 to create a supporting organization (SO) to fund the Woodrow Wilson School of Public and International Affairs “where men and women dedicated to public service may prepare themselves for careers in government service, with particular emphasis on the education of such persons for careers in those areas of the Federal Government that are concerned with international relations and affairs.”4

    The foundation, with assets of roughly $900 million in late 2007, provided funds for Princeton's Woodrow Wilson School but also funded other budgets at the university, including a $13 million principal distribution to build Wallace Hall, a building designed to house the expansion of the Woodrow Wilson School as well as Princeton's sociology department and other programs.

    During his lifetime, Charles S. Robertson grew unhappy with the foundation's spending patterns and the low number of students engaged in the pursuit of diplomatic service, expressing his concerns in writing. The school dismissed his concerns explaining the world of diplomacy was no longer the same. Marie Robertson died in 1972; Charles died in 1981. Their son William S. Robertson, his sisters Katherine Ernst and Anne Meier, and cousin Robert Halligan — also unhappy about the application of foundation funds — filed a lawsuit in July 2002 to redirect funds to other universities that could fulfill the donors' goals.

    The suit alleged the school intentionally violated the donors' intent. It also claimed that Princeton was engaged in self-dealing with regard to the foundation's investments and distribution of funds.

    The lawsuit involved numerous depositions and other discovery, costing Princeton more than $40 million in expenses through December 2008 when it was finally settled.5 The $90 million settlement required Princeton to transfer $40 million plus interest to the Robertson's family foundation to cover the costs of the lawsuit, and $50 million to create a new foundation to fulfill the donors' original purpose.6 The original foundation will be dissolved and its assets transferred to Princeton, which will have sole authority over investment management and use of the funds.

  • Howard v. Administrators of the Tulane Educational Fund — From 1886 to 1901, Josephine Louise Newcomb contributed more than $3.6 million to create the Sophie Newcomb College at Tulane to advance “the cause of female education in Louisiana.” The gift, worth about $75 million in today's dollars, established the first separate college for women in a university in the United States. After Hurricane Katrina temporarily closed Tulane in the fall of 2005, the trustees voted to close Newcomb College and to allocate its endowment to the Newcomb College Institute, an academic center devoted to enhancing women's education at Tulane.

    Two of Josephine's heirs — Parma Howard and Jane Smith — filed suit to enforce Josephine's intent in maintaining a separate college. The district court judge dismissed the Newcomb heirs' lawsuit, holding they had no standing to enforce the gift.7 This ruling was affirmed by a Louisiana Fourth Circuit Court.8

    But the heirs appealed, and on July 1, 2008, the Louisiana Supreme Court vacated the dismissal and remanded the case to the trial court to allow Josephine's descendants to proceed with the suit to enforce her gift's terms.

    In August 2008, a second lawsuit was filed in the district court of the Parish of Orleans by another Newcomb descendant, Susan Henderson Montgomery, also seeking to enforce the terms of Josephine's gift.9 Susan filed a motion for summary judgment with the Civil District Court in New Orleans asking that the court order Tulane to reinstate Sophie Newcomb College. The judge denied the motion and in October 2009, Susan announced she'd appeal that ruling.10

  • The Barnes Foundation's court petitions to change its settlor's intent — Albert C. Barnes established the Barnes Foundation in 1922 to house his extensive impressionist, post-impressionist and early modern art collection (including many masterpieces with a collective current value of $6 billion) and to educate the working class about art. The collection — which Albert had assembled and mounted — was located in a modest structure in Merion, Pa., a Philadelphia suburb. Albert also arranged the paintings and designed the art education curriculum. He did not intend to have the entity operate as a traditional museum.11

    Albert died in 1951. In 1991, the trustees went to court to amend the foundation's governing documents, which prevented the trustees from selling or loaning the art in the collection.12 While the lawsuit — which cost the foundation about $10 million in expenses — did not result in a change in the foundation's bylaws, the judge did allow the foundation to take the art on tour, raising about $16 million for renovations.13

    In September 2002, the foundation was financially strapped, so the trustees filed another lawsuit, this one seeking permission to move the art collection from the building in Merion to a new building (to be constructed) in downtown Philadelphia (in the hopes of drawing bigger crowds). They asked the court to allow the board of trustees to expand from five, as Albert had designated in the governing documents, to 15, to expand the foundation's fundraising capacity.14

    In early 2004, the court approved the increase in the number of trustees, deferring the decision on the move until other options to raise funds were explored. Then, on Dec. 13, 2004, the Court of Common Pleas of Montgomery County, Penn., Orphans' Court Division granted the trustees' request to move the foundation's art gallery from Merion to Philadelphia. The court's 41-page published opinion15 acknowledged the changes ran counter to the terms of the foundation's 1922 charter and governing documents, but noted there was “no viable alternative” for the financially compromised charity.16 An appeal filed by an art student at the foundation was dismissed by the Pennsylvania Supreme Court for lack of standing.17

    Plans for the new $200 million Philadelphia-based Barnes Foundation Museum were made public in early October 2009. The new building is slated to open in 2012.

  • Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University — In 1913, the Tennessee Division of the United Daughters of the Confederacy entered into the first of a series of gift agreements with George Peabody College for Teachers to raise $50,000 for the construction of a dormitory, a portion of which would provide rent-free housing for students of Confederate ancestry. The agreements spelled out key restrictions on the gift, including the requirement the dormitory bear the name of “Confederate Memorial Hall.” The dormitory was completed in 1935, and for many years Peabody College, then Vanderbilt University after its merger with Peabody, abided by the terms of the gift. But in 2002, Vanderbilt's president decided to rename the building, stating that the term “Confederate” created a marketing problem for the university.

    The United Daughters of the Confederacy, who were not consulted about or informed of the change, filed a lawsuit to compel Vanderbilt to honor the terms of the gift agreement. At trial, the court granted Vanderbilt's motion for summary judgment finding the obligation to comply with the gift agreements was “impractical and unduly burdensome.” But the Court of Appeals of Tennessee reversed the trial court and upheld the gift agreement.18 It gave Vanderbilt two choices:

    1. abide by the terms of the agreements between the United Daughters of the Confederacy and Peabody College; or
    2. return the present value of the original gift to the United Daughters of the Confederacy.

    Vanderbilt chose not to appeal the decision and to honor the gift terms.

  • Fisk University v. Georgia O'Keeffe Foundation — In 1949, Georgia O'Keeffe, widow of Alfred Stieglitz and executrix of his estate, transferred Alfred's collection of 97 photographs and paintings to Fisk University in Nashville, Tenn. The gift was subject to a restriction that Fisk would not at any time sell or exchange the pieces of the collection. Georgia then contributed four additional pieces that were part of her personal collection for a total of 101 pieces.

In 2005, Fisk filed a petition in the Chancery Court of Davidson County asking the court to invoke the legal doctrine of cy pres to permit the sale of two of the paintings in the college. The university cited the cost of maintaining the collection and other financial needs. The Georgia O'Keeffe Foundation originally filed to block the action. In 2006, the Georgia O'Keeffe Museum filed a petition, granted by the court, to substitute the museum for the foundation, alleging the museum was Georgia O'Keeffe's successor in interest and seeking through counterclaim to have the collection transferred to the museum through right of reverter. In 2007, the Tennessee attorney general was permitted to join the proceedings to protect the interests of the people of Tennessee.

The Tennessee attorney general rejected a settlement with the Georgia O'Keeffe Museum involving a sale of several of the paintings. The Chancery Court judge then rejected a revised version of the same settlement. In between the two settlement attempts with the Georgia O'Keeffe Museum, Fisk rejected an offer from the Crystal Bridges Museum of American Art (a museum primarily funded by the Walton Family Foundation that's planned for Bentonville, Ark.) involving the purchase of an undivided 50 percent interest that would allow Crystal Bridges and Fisk to share the collection.

In a pre-trial motion, the court ruled that the cy pres doctrine was not applicable because Georgia had specific rather than general charitable intent when she transferred the collection to Fisk. The court also found it had the power to order reversion if the Georgia O'Keeffe Museum could demonstrate Fisk breached the gift conditions.

Following a trial, the court ruled that none of Fisk's actions had yet violated the gift terms and imposed an injunction that Fisk comply with the gift terms.

Fisk appealed.19 In July 2009, the court of appeals reversed the trial court's determination that the Georgia O'Keeffe Museum had standing to sue, finding that the museum had no right of reversion in either the 97 pieces transferred to Fisk from Alfred's estate by Georgia's exercise of her power of appointment, or the four pieces Georgia gifted to Fisk out of her personal collection.20

The appeals court also found the trial court erred in dismissing Fisk's petition for cy pres relief after determining cy pres was not applicable because Georgia's charitable intent was specific rather than general.

The trial court did not determine cy pres relief was appropriate, but remanded the petition to the trial court for that determination.21

Commonalities

While each of these five cases is governed by a discrete set of gift agreements, facts and courts, we can identify patterns and thereby help charities and donors analyze their options and avoid litigation.

Nonprofits seem to stray from donor direction because other institutional financial needs are more important, the donor's gift purpose is no longer relevant, or the gift requires too much time, attention or funding to remain viable. These problems will occur over time for all perpetual gifts. The real problem, however, is how the nonprofit goes about instituting the change. In many of these cases, we find the age-old failure to communicate. One of the key common triggers that led donors to file suit was the fact that nonprofits didn't consult them. The charities decided to change the gift terms — but brought neither the donors nor the courts into the decision making process. In Robertson, the donor himself expressed concern about variance from the gift terms during his lifetime but Princeton officials seem never to have engaged in a serious dialogue with him or his family about those concerns. In the case of Vanderbilt's relationship with the Daughters of the Confederacy, the university brass treated the decision as an administrative matter that could be handled by the chancellor and without the Daughters. In the case of Tulane, the university's board reacted to a natural disaster and made a decision without seeking input from the donor's descendants.

Enforcing Intent

So, let's assume a donor has completed a gift and either the donor or the donor's descendants learn the recipient charity has taken actions that appear to violate the terms of the gift agreement. What actions can a donor or descendants take?

Effectively pursuing relief will likely require three things: a written document clearly expressing the agreement between the donor and the charity, standing to sue, and the resources to pursue the claim:

  • A written document — Donor intent is a malleable concept; a written document provides clarity for that concept. Without clear, written gift terms, intent is difficult to interpret several years down the road when parties to the transaction are unavailable and the charitable environment has changed. The written document may include a written directive accompanying the transfer of the gift, a gift through will or other recorded document, or a formal gift agreement signed by both parties.

    But even documents have limitations. Because the documents are generally prescriptive and direct how the gift will be managed (rather than expressing the charitable outcomes from the operation), the written instructions may prove insufficient to provide absolute guidance to charities, courts, or descendants. The document is, however, an essential starting point.

  • Standing to sue — Of course, the party who's bringing suit must have standing to sue the charity to compel compliance with gift terms. Less obviously, donors and their descendants do not necessarily have standing.

    For many years, the rule in most state courts has been that a donor does not have standing to sue a charitable organization to enforce a gift restriction. This principle, arising from the common law, is based on the premise that the donor relinquishes all rights in the property when the gift is made. In the leading case on this point, Carl J. Hertzog Foundation, Inc. v. University of Bridgeport,22 the donor made a $250,000 gift to the University of Bridgeport designated for medical education scholarships. Initially, the money was used to provide nursing scholarships. But then the nursing school closed and Hertzog Foundation funds were diverted to another purpose. The donor filed suit seeking a temporary injunction, an accounting, a reestablishment of the fund in accordance with the gift agreement, or, a gift over to another charity, the Bridgeport Area Foundation.

    The trial court found the donor had no standing to sue. The sole issue in the appeal was whether the Connecticut Uniform Management of Institutional Funds Act established standing for a donor to bring suit to enforce a gift restriction. While the appeals court reversed the trial court finding the statute did give a donor standing, the Connecticut Supreme Court disagreed — concluding that the general rule at common law was that a donor had no standing to enforce the terms of a completed charitable gift unless the donor had reserved a property interest in the gift (such as a right of reverter), which may bring himself and his heirs within the “special interest” exception to the rule.23

    The Connecticut high court also recognized the rationale that the state attorney general is the public official who has standing to protect the public in the case of a restricted charitable gift.24

    Still, more recently, many courts seem to be reconsidering this issue. Around the country, donors are being allowed to pursue donor intent suits.

    For example, a July 2003 lawsuit filed in Amarillo, Texas, by the estate of Sybil B. Harrington, widow of Texas oilman Donald D. Harrington, and the Amarillo Area Foundation (appointed by Sybil to oversee the use of the funds) sought the return of $5 million from the Metropolitan Opera in New York. The lawsuit claimed Sybil had donated more than $27 million to the Met during her lifetime. Sybil had created a significant endowment with the Metropolitan Opera to fund traditional opera, and the suit alleged they had applied the funds for purposes outside that scope.25 The lawsuit was allowed to proceed. In 2004, the parties settled out of court, declining to disclose details of their agreement.

    In a New York case, Smithers v. St. Luke's-Roosevelt Hospital Center, the court found the donor could proceed if she could demonstrate a special relationship to the gift.26 The plaintiff's husband, R. Brinkley Smithers, gave $10 million to St. Luke's-Roosevelt Hospital Center in New York to create and establish an endowment to support an alcoholism research and treatment facility over a period extending from 1971 to 1983. On the facts, the court concluded a donor (or his family) were often in a better position than the state attorney general to enforce gift intent. The court held the donor's widow — and the state AG — should have “co-existent standing” to bring suit.27 The hospital settled in July 2003, agreeing to transfer $6 million to another nonprofit to establish a freestanding alcohol treatment center, and to restore $15 million to the endowment.

    In California, the Court of Appeals, 4th District, allowed a donor to sue to enforce gift terms for a gift that provided a “gift over,” or an alternate charitable beneficiary, in the event the original gift terms were not met.28 In this case, the L. B. Research and Education Foundation made a $1 million grant to the UCLA Foundation to create an endowed chair in cardiothoracic surgery governed by a written grant agreement specifying the criteria for the chair holder. In October 2003, L. B. Research Foundation sued the UCLA Foundation and the Regents of the University of California for specific performance of the gift agreement, alleging the funds had been used for purposes other than those specified in the gift agreement. The UCLA Foundation and university regents answered, alleging the gift created a charitable trust that only the California attorney general had standing to enforce. The defendants moved for summary judgment on the lack-of-standing issue and a trial court agreed. But an appeals court reversed, finding the arrangement in this case was contractual, and that, even if it hadn't been contractual, the plaintiff had a “special interest” that allowed it standing. The court also found that the state attorney general's power to enforce charitable trusts under California law was not exclusive.29

    As the lawsuit moved into the discovery phase, facts emerged showing a UCLA professor of cardiothoracic surgery, Dr. Gerald D. Buckberg, controlled the L. B. Research Foundation. In a countersuit, UCLA alleged Buckberg had made the gift and written the criteria for the chair holder to ensure he would get the position. On Sept. 9, 2009, California's attorney general filed a lawsuit against Buckberg and five other officers of the L. B. Research & Educational Foundation to recover over $500,000 improperly spent by the foundation for purposes benefiting its officers.

  • Resources to pursue enforcement — Even with a clear written agreement and standing to sue, the donor or descendants must have sufficient resources to pursue relief, especially when the funds in question are large and the charity holding those funds has extraordinary size and/or resources. Robertson is a perfect example. The order settling that case held Princeton responsible for $40 million in attorney's fees that the Robertson family had incurred in the years leading to trial. $40 million! Clearly, few families have that kind of excess money with which to pursue donor intent lawsuits. And most state attorneys general would not be able to allocate such funds to these kinds of cases.

The Charities' Perspective

It's almost inevitable that charities will experience a need to make changes to long-term gifts. A gift's purpose may no longer effectively support the charity's mission; the cost to administer the gift may outweigh the gift's charitable benefits or a lack of funds may cause harm to the gift property;30 or the charity's needs have dramatically shifted so that the gift revenue is no longer needed (or no longer needed at the level provided).

When problems arise, charities should understand the options for resolution. In order of facility, those include:

  1. change the gift terms through negotiation with living donors;
  2. act under a provision for change pursuant to the gift agreement;
  3. seek relief under the de minimus provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA); or
  4. procure court-approved changes.
  • Negotiating change of purpose with living donors — While donors who make gifts relinquish all control over contributed property, the provisions of the Uniform Management of Institutional Funds Act (UMIFA) and UPMIFA allow charities to negotiate a change of purpose in long-term gift agreements — with living donors. Obviously, then, this is the most cost-effective and time-sensitive route. Charities with gift agreements with living donors have the opportunity to go back to donors to renegotiate gift terms to provide flexibility over time, a moderation of purpose, or an alternative purpose in the event the original purpose is no longer viable. This approach requires time and patience to educate donors about the need for change and work through potential options and may involve legal fees for implementing changes. But working with living donors is far more cost effective than subsequent lawsuits, and allows the charity to position itself as a good steward of the gift.

  • Making changes pursuant to terms of the gift agreement — Here's an extraordinary drafting challenge: If at all possible, planners and advisors should insure that gift agreements are flexible enough so that changes can be made without court intervention and it's very clear not only what changes are permissible without judicial scrutiny, but also how decisions about those changes are to be made.

    Permissible changes may include secondary uses for the gift at the same institution, a gift over transferring proceeds to a succeeding charitable institution, or other creative alternatives.

    The document should designate individuals responsible for making changes to the gift purpose. They may be the same people as those who determine it's time to make a change — or other people entirely. The document also should articulate what to do if there is conflict among designated deciders.

    Placing discretion in a group qualified to make decisions based on the facts and circumstances at the time is a principle used in multi-generational trusts and makes those trusts effective over the long haul.

  • Seeking relief under the prudent investor rules — In 1972, the uniform law commissions created UMIFA, which was adopted in whole or in part by all states except Alaska and Pennsylvania, to govern long-term funds held by charitable institutions. Section 7 of the model UMIFA statute permitted a “release of limitations that imperil efficient administration of a fund or prevent sound investment management if the governing board can secure the approval of the donor or the appropriate court” and had four parts:31

    1. Restrictions can be released with the written consent of the donor.
    2. If the donor's written consent cannot be obtained, a court of appropriate jurisdiction can release the restriction if the restriction “is obsolete, inappropriate, or impracticable.”32
    3. A release cannot change the use of the funds to non-charitable purposes.
    4. The section does not limit the court's application of the cy pres doctrine.33

In July 2006, the commissioners approved a revision, UPMIFA, that made changes in areas from investment management standards, to provisions allowing the release of gift restrictions under certain circumstances. UPMIFA is rapidly replacing UMIFA across the country; more than 43 states have adopted a version at last count.34

In Section 6, UPMIFA expanded the power to release or modify donor gift restrictions, allowing change under these circumstances:

  1. Donor release — “With the donor's consent in a record,” the charity can release a restriction in whole or in part, so long as the gift is still used for the organization's charitable purposes.35

  2. Doctrine of deviation — If a modification to a gift agreement/document will enhance the furtherance of the donor's purposes, or a restriction is “impracticable or wasteful and impairs the management or investment of the fund,” the charity can ask a court to modify the restriction. The appropriate state attorney general must be notified and be heard. The modification must reflect the donor's “probable intention.”36

  3. Doctrine of cy pres — If the purpose or restriction becomes “unlawful, impracticable, impossible to achieve, or wasteful,” the court may use the cy pres doctrine to modify the fund purposes. The state attorney general must be notified and given the opportunity to be heard on the matter.

  4. Small funds — For funds with a value less than $25,00037 that have been in place more than 20 years, court action is not required if the charity determines a restriction is “unlawful, impracticable, impossible to achieve, or wasteful” — so long as the charity waits 60 days after notice to the state attorney general of the intention to make the change, and the change is designed to be a good faith reflection of the expressed charitable purposes.38

  5. Seeking court approved changes — Although court action is generally perceived to be the action of last resort, it may be a charity's only solution. Generally the state attorney general will be a party to the action to represent the public's charitable interests. These hearings may not only be costly, but also unpredictable. (Witness what happened in the Fisk dispute with the Georgia O'Keeffe Museum.) A decision to seek court approval must be made with legal counsel considering the burden or problems with the gift terms, the donor and donor family's response, the public's reaction to the request, and the potential downside if the court makes a ruling counter to the charity's goals.

Lessons for Donors

The clashes over donor intent offer many valuable lessons for both donors and charities. These principles are more practical than legal, as legal outcomes vary depending on state courts and case facts.

Keep five principles in mind when creating permanent gifts for charitable institutions:

  1. Planning is essential for gifts' long-term effectiveness

    The donor and the charity should make sure they understand donor intent — both the long- and short-term purposes of a gift. Keep in mind that this is much harder than it sounds. Articulating long-term goals is not natural. Most of us shape our thinking by events, facts and circumstances of today, rather than attempt to envision changes of the future. For example, it might have been difficult for a donor in the 1950s who wanted to create an endowment to fund homes for unwed mothers to envision the social and cultural changes that would occur by the 1990s that eliminated the need for such hideaways for unwed mothers.

  2. Execute a clear, written document governing the gift

    If the gift is made through bequest, consider executing a gift agreement during life and incorporating that document by reference under the document governing the bequest.

  3. Remember that perpetuity is a long time

    Understand that many gifts — especially those created in endowment form — are doomed to outlast their gift purposes and terms. Social changes, economic changes and even changes in the charity's mission, make it almost impossible for a gift document to last 50 years, much less through perpetuity. The best gift agreement anticipates the impossible to imagine.

    What if the program is discontinued? What if the charity is dissolved? What if the charity merges with another charity? What if the fund produces more than is required by the original gift purpose? What if the funds are no longer needed for that purpose? Who will make the decisions about how changes are to be made? Under what circumstances does the donor want changes made without judicial intervention?

    Every donor can have different answers to such questions, so many of these questions should be conceptualized, asked and answered.

  4. Rather than form the gift in prescriptive terms (telling charities how they achieve the donor's charitable goals), think in terms of outcomes and give charities the flexibility to achieve those outcomes

    Advisors should begin this process with donors. What does the donor hope to achieve? What are the measurable outcomes? Set benchmarks. Consider the gift/need's potential evolution. Build in flexibility. Consider accountability, measurement of results and reporting to the community to ensure the charity remains focused on the outcomes. There is one caveat: The accounting and reporting should be manageable so that it does not consume the majority of the gift's revenue stream.

  5. Consider including a gift over, or reverter, to provide a solid legal platform to enforce the gift

    While it's clear that state courts are moving away from the common law rule denying donors standing to sue and towards a rule giving them and their descendants the ability to enforce gift terms, results may vary from state to state.

Lessons for Charities

Charities also have much to learn about the management of long-term gifts. Change in the effectiveness of a long-term gift is inevitable, although it is always less clear how that need for change will manifest. Consequently, charities need to plan for change and manage those changes wisely. Consider these five recommendations:

  1. Develop standard gift agreements for use in planning long-term gifts that provide flexibility over time and encourage donors and their advisors to use these agreements

    The standard gift agreement should include either term limits on donor gift restrictions or make provisions for change in the document subject to certain triggers.

  2. Review current gift agreements with living donors to identify documents that may need changes

    It is far easier to craft solutions or alternatives during the donor's lifetime than to struggle with the options for change after the donor's death.

  3. Once the gift agreement (and amendments to the agreement) are complete, keep the documents in a safe place

    This seems obvious, but too many charities are unable to put their hands on key donor documents even 20 years after the gift — and have little chance of finding those documents after 50 or 100 years. Gift purposes become more a matter of folklore than legal reality. (Institutional policies are the smartest way to ensure consistency.) Also keep records of planning sessions and donor conversations. These contemporary recorded observations may be valuable to later generations in interpreting donor intent. Some charities include these records as a part of board minutes (when the gift is reported and accepted), because these records are retained as a matter of law.

  4. Adopt policies and procedures governing long-term gift management that includes donor stewardship, reporting and the process for initiating gift changes

    Stewardship involves engaging in regular communication with donors and their families about the use and outcomes of the gift. Engaging with lower generations helps build relationships that may later avoid conflict. The donor's descendants may not have the same goals, objectives, or perspectives as the donor. In fact, they rarely do. Sharing the donor's conversations, goals, and regular reports on how those objectives are met are powerful tools in managing expectations. The policies should also create an internal committee that provides oversight of long-term gift management, and identifies problems early.

  5. Avoid crisis management

    When things begin to go bad — either because of disagreements with family members or an unanticipated turn in the road — address the issues early. In most cases, it will be beneficial to involve family or original advisors to provide input about options. Problems generally grow worse — and relationships deteriorate — when no action is taken. Just deal with it.

A version of this article was published in The Journal of Gift Planning in October 2009.

Kathryn W. Miree is president of the Birmingham, Ala.-based nonprofit advisory firm of Kathryn W. Miree & Associates, Inc. Winton C. Smith, Jr. is a lawyer in the Memphis, Tenn., firm of Winton Smith & Associates

Endnotes

  1. While some of these cases have reached a final resolution, others are still in the courts. The facts or resolution of these cases continues to change and you should check for updates before relying on the case status set out in this article.
  2. William Robertson, et. al., v. Princeton University, et. al., Docket No. C-99-02, Superior Court of New Jersey, Chancery Division: Mercer County (2008).
  3. Marie Robertson was the daughter of the founder of the A & P grocery chain.
  4. The language setting out the Foundation's purpose is taken from its Certificate of Incorporation. To provide context, in 1961 the United States and Russia were engaged in a cold war, the United States was involved in Vietnam, and President Kennedy was asking Americans to “Ask not what your country can do for you — ask what you can do for your country.”
  5. Raj Hathirimani, “Robertson Lawsuit Most Expensive in University History,” The Daily Princetonian, <www.dailyprincetonian.com> (Nov. 19, 2004); the lawsuit was settled on Dec. 10, 2008 and approved by the court on Dec. 12, 2008.
  6. “Robertson Lawsuit Settled,” <http://paw.princeton.edu/issues/2009/01/28/pages/7568/index.xml>.
  7. Howard v. Administrators of the Tulane Educational Fund, Civil District Court, Orleans Parish, No. 2006-4200, Div. B-15 (unreported).
  8. Howard v. Administrators of the Tulane Educational Fund, 970 So.2d 21 (Ct. App. 4th Cir. Oct. 22, 2007).
  9. Montgomery v. Administrators of the Tulane Educational Fund, Civil District Court, Orleans Parish, No. 08-8619, Div. B-I (unreported).
  10. This lawsuit is still unfolding and further developments may have occurred after this article was written. Please check for recent developments at <www.newcomblives.com>.
  11. According to the foundation's press release, the foundation has a three-year horticulture program and a two-year art and esthetics program with a one-year seminar extension.
  12. Lita Solis-Cohen, Maine Antiques Digest, March 2004, <www.maineantiquedigest.com/articles/mar04/barnes0304.htm>.
  13. Ibid.
  14. Ibid.
  15. The Barnes Foundation, No. 58,788 (Dec. 13, 2004).
  16. Debra E. Blum, “Court Ruling Could Influence Restrictions Donors Place on Bequests,” The Chronicle of Philanthropy (Jan. 6, 2005); “Court Allows Barnes Foundation To Move Collection to Philadelphia,” Nonprofit Issues, Dec. 16, 2004 to Jan. 15, 2005, <www.nonprofitissues.com/public/features/leadfree/2004dec2-IS>.
  17. Debra E. Blum, “Pennsylvania's Highest Court Allows Multibillion-Dollar Art Collection to Move,” The Chronicle of Philanthropy (April 28, 2005).
  18. Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University, 174 S.W.3d 98 (Ct. App. 2005).
  19. A copy of the appeal can be found at <www.tennessean.com/assets/pdf/DN115593814.PDF>.
  20. Slip Copy, 2009 WL. 2047376, No. M200800723 COAR3CV (Tenn. Ct. App. July 14, 2009) .
  21. Ibid.
  22. Carl J. Hertzog Foundation, Inc. v. University of Bridgeport, 699 A.2d 995 (Conn. 1997).
  23. Ibid, at 999.
  24. This approach giving the state attorneys general responsibility for protecting public interests, including charitable gifts, is well established. Conceptually, this prevents charities from having to defend countless lawsuits from individuals with only a tenuous relationship to a gift. As a practical matter, however, state budgets do not afford sufficient staff to the offices of the state attorneys general to provide extensive oversight.
  25. Brad Wolverton, “Bequest to Metropolitan Opera Challenged,” The Chronicle of Philanthropy (Aug. 7, 2003).
  26. Smithers v. St. Luke's-Roosevelt Hospital Center, 281 A.D.2d 127 (App. Div. 1st Dept. 2001).
  27. Ibid, at 140.
  28. L. B. Research and Education Foundation v. The UCLA Foundation, 130 Cal. App. 4th 171 (June 14, 2005). The opinion is available at <www.courtinfo.ca.gov/opinions/documents/B176151.PDF>.
  29. Ibid.
  30. This may be because the restrictions require a level of accounting and administrative cost that becomes burdensome, or simply because the gift is so small that the cost to maintain discrete accounting is greater than the revenue generated by the fund.
  31. Uniform Management of Institutional Funds Act (UMIFA) (1972) Section 7, Comments.
  32. Ibid, Section 7(b).
  33. Cy pres” means “as near as possible.” In this context, it means a court of equity has the power to alter use of the gift for a purpose as near as possible to the donor's intent. This application could mean application of the funds to another charity if it is impossible for the named charity to fulfill the donor's specified use of the gift. It can also mean application to another purpose if the original is impossible, impractical or illegal to fulfill.
  34. This figure is constantly changing. Go to www.upmifa.org> for an up-to-date report on the number of states that have adopted the Uniform Prudent Management of International Funds Act (UPMIFA) in whole or in part.
  35. UPMIFA Section 6(b).
  36. UPMIFA Section 6(c).
  37. Some states have expanded this dollar amount to as high as $100,000 in enacting the model statute.
  38. UPMIFA Section 6(e).