The Importance of Honoring Donor Intent
Gift restrictions have always been a component of charitable giving. A donor designates or “restricts” how the receiving organization can use the donated funds or property — whether it’s to fund a university scholarship or construct a new wing at an arts center.
When a donor makes a restricted gift, the recipient is legally bound to follow the conditions of the gift. As you’ll see in the cases that follow, courts can order a nonprofit to return a gift — and pay additional damages — if the nonprofit changes the use of the gift without the donor’s consent.
Case 1: A Gift Bites Back
A New Jersey appeals court recently ordered an animal shelter to return a $50,000 gift made by a Princeton couple for the express purpose of constructing an area for larger dogs and older cats whose adoption prospects are limited. Before construction could begin, the shelter merged with another animal welfare group and decided to build a new shelter in a nearby county at roughly half the size.
While a trustee testified that the new shelter would “absolutely” have rooms for large dogs and older cats, the court ruled that the nonprofit had courted the long-time supporters with a campaign that specifically included the two rooms and a naming opportunity. The court wrote, “To be clear, the record shows that the defendant (1) decided to construct a substantially smaller facility; (2) outside the Princeton area; (3) without any specifically designated rooms for large dogs and older cats; and (4) without any mention of plaintiffs’ names.”
In its defense, the group’s Executive Director stressed that it never intended to not fulfill the donors’ desire to care for large dogs and aging cats — and that it was simply taking advantage of the offer for a piece of property in a neighboring township. Yet, in the end, the court ruled that the nonprofit had breached its fiduciary duty by opting to disregard the plaintiff’s conditions.
Case 2: Friends in Low Places
Country music superstar Garth Brooks was awarded $1 million in 2012 by an Oklahoma jury that found a hospital had defaulted on an oral agreement to construct and name a women’s center after the singer-songwriter’s late mother. In court, Brooks contended that he had several meetings with the hospital’s president in which they discussed the $500,000 donation. The hospital claimed that the gift was unrestricted and that only after the donation was made did Brooks state specifically how he wanted the funds to be used.
Brooks claimed that the hospital’s president suggested the gift be used to construct a women’s center and that he made the donation for the sole purpose of constructing such a center to honor his mother. Even though the agreement was never made in writing, the jury eventually found in favor of Brooks — awarding him punitive damages of $500,000 in addition to the return of the $500,000 donation.
How NFPs Get in Trouble
There are some common triggers that prompt lawsuits over donor intent. Most notable is the lack of a written agreement, so head off issues by documenting all gift agreements. At the same time, educate donors about the consequences and challenges of making restricted gifts and provide them with some alternatives to narrowly defined gifts.
Another common problem is charities opting to keep the donor out of discussions when deciding to change the terms of a gift. Nonprofits wind up in trouble when they make these decisions unilaterally through an internal process that does not involve the donors and/or their descendants (or the courts).
The reality is that donors are often very willing to negotiate the terms of their gifts to suit the ever-changing needs of the institutions they value enough to give to in the first place. The key is clear and open communication.
Contact our office for guidance on drafting and implementing an effective gift-acceptance policy.