In a world that requires me to travel constantly, there are few things I enjoy more than having an opportunity to speak at the Alabama Planned Giving Council (APGC), the local affiliate of the Partnership for Philanthropic Planning. As the APGC speaker on January 16, 2014, I had the opportunity to catch up with my colleagues and to address donor intent, one of my favorite topics. The session centered on preserving donor intent in long-term gift arrangements and focused on three elements critical to the success of any perpetual charitable entity or gift agreement: 1) a clear articulation of the donor’s goals and objectives in terms of outcomes (rather than detailed directives on how and when the funds will be spent); 2) a written gift document that incorporates those goals and addresses all material elements and expectations of the gift agreement; and 3) non-judicial options that allow flexibility in the use of the funds over time. Here are some of the key issues raised in that presentation. (A copy of an earlier version of the presentation may be downloaded from the Resource Library on this site.)

Why is it so difficult to preserve donor intent, especially where there is a written document clearly expressing how the funds should be used?

Since most endowments, foundations, and similar long-term gifts are perpetual (by all measures, an extremely long time), the biggest obstacles to preserving donor intent are time and change. Planners and donors must realize that the needs and issues of today will not be the needs and issues of tomorrow. Here are two examples of such challenges. A donor in the 1950’s made a gift to a community foundation to fund homes for unwed mothers. By the first decade of 2000, just fifty years later, it was difficult to find a home for unwed mothers because social acceptance of unwed mothers had changed. In another case, a donor who had served on the Altar Guild at her church created a $100,000 fund for flowers at the church, restricting the use of her funds solely to flowers to avoid the funds being appropriated for church operations. The fund was created in the 1980s, but thirty years later the fund had grown to almost $1 million. The fund now generates far more than the Altar Guild needs for flowers, yet there is now language allowed the excess to be used for critical church needs such as facilities and church school programs). The challenges and dangers in managing change for long-term gift agreements is evident in the number of costly donor lawsuits alleging violation of donor intent brought by heirs of donors against well-respected institutions such as Princeton, Tulane, the Barnes Foundation, Vanderbilt, and Fisk University (among others). These lawsuits, even when the charity prevails, are costly in terms of legal costs, time required, and donor relations.

What are the options if you have a document that is either too small, too costly to administer, designated for a purpose that no longer needs funding, or simply impracticable to manage?

Charities generally have four options when faced with a document with a limited, outdated, or impractical purpose:

1) The best option is to include provisions for non-judicial change in the gift document. This may not be necessary when the fund is held at a community foundations since community foundations have cy pres power which allows the Board to modify gift agreements to a purpose as close as possible to the donor’s intent when the original purposes have become impossible, impractical, or illegal.

2) If the document does not provide for change and the donor is living, the Uniform Prudent Management of Institutional Funds Act (UPMIFA), a model law promulgated by the Uniform Law Commission and now in effect in all states except Pennsylvania, allows the donor to make written changes to purpose.

3) If document does not provide for change, the donor is no longer living, the fund has been in place more then twenty years, and the fund is small (defined in the Model Code as less than $25,000 but defined at higher levels in some states) UPMIFA allows the charity to give notice to the Attorney General and make changes to reform the purpose to one as close as possible to the donor’s original goals.

4) Finally, if the document provides no relief, the donor is not living, and the fund is large or has not been in existence for at least twenty years, the institution may ask the court to modify the management or investment terms of the fund if the terms have become impracticable or wasteful, if the terms impair the management or investment of the fund, or if a modification required because of circumstances unforeseen by the donor would further the purposes of the fund. Since the Attorney General represents the charitable interests in each state, the institution must notify the Attorney General and the Attorney General has a right to be heard in the court action.

What practical advice would you give planners who are drafting long-term gift agreements?

I generally offer planners the following practical advice when working with donors to create perpetual charitable entities or gift agreements:

1) Change is inevitable, so plan for change.

2) Spend time with the donor to understand more about their charitable vision. Help the donor define objectives in terms of outcomes rather than by narrowly defining the program or purpose that will benefit from the gift.

3) Revel in the donor’s charitable vision, but design the gift to outlive that vision.

4) Professional advisors should always involve the charity in planning, even if the donor is positioned anonymously in those discussions, to ensure the charity can effectively use the funds for the purpose or purposes intended.

5) Always include non-judicial provisions for change in the document. For example, the donor may want to provide flexibility in the use of the funds by designating a “Plan B” and even a “Plan C” purpose in the document if the original gift purposes are no longer practical, purposeful, or appropriate. If using this approach clearly designate third parties or internal staff members who will determine when it is appropriate to move from Plan A, to Plan B, or to Plan C. Another option is to encourage the donor to limit the gift restrictions to a specific time period (i.e. 25 years, or 50 years) after which the charity can allocate the funds to the most critical needs in a specific or general area. Finally, planners can consider a “gift over” which is a provision in the document that transfers the funds to another institution in the event the charity does not or cannot comply with the donor’s directives.

6) When problems arise, early communication is key to avoiding bigger problems. Involve the donor (if alive) , the donor’s family, or others named by the donor for oversight.