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Donor intent: principles of documenting a gift. (Fundraising).

There has been much debate recently regarding issues relating to donor intent. Several pending court cases involve donors, or their descendants, suing nonprofits for allegedly violating the original purposes of gifts. Donors and their heirs also are increasingly involved in organizations they support, and are more vigilant in enforcing gift restrictions.

In one publicized dispute, the family of Charles and Marie Robertson and Princeton University disagree about whether the Robertsons' sizeable endowment to the university should be merged with Princeton's larger endowment fund. The Robertsons also say the gift is not being used as intended, which the university denies. The Chicago Community Trust and the family of John G. Searle differ on the way money should be distributed from the Searle Fund at the Trust, and on the degree of the family's involvement.

The national cases provide an opportunity for nonprofit professionals to reflect upon some key principles for discussing potential gifts with donors. These principles should not be construed as legal advice; rather, they raise issues to consider as gifts are made.

While there is no absolute guarantee against misunderstandings, a good written agreement between a donor and beneficiary organization can smooth the way for an ongoing, positive relationship. Soundly written agreements can help avoid confusion about how to honor donor intentions when issues arise and the donor is no longer available to be consulted.

When a donor's specifications become impossible or difficult to execute, a thoughtfully planned document can guide your organization through determining what the giver would wish and your next steps. It also can start a discussion of necessary changes and acceptable alternatives with donors or their descendants.

Reaching an agreement represents a process whereby the donor and the charity discuss the relevant terms of the gift and alternative uses in the event that the original purpose can no longer be fulfilled. The resulting document may be called by many names such as a gift agreement, memorandum of understanding or a gift contract. Whether the agreement is a binding contract or a non-binding expression of intent is based on reasons that best serve the charity's mission and the donor's philanthropic objectives.

The document can take different forms. It might be based on a wide variety of documents and arrangements between donors and recipient organizations, ranging from pledge cards and bequests in wills to endowment fund agreements, charitable remainder trusts, and many others.

Step-by-step

Organizations should take into account the following considerations:

First, an agreement should clearly set out the obligations of each party. For example, the donor's obligation to give a certain amount of money and the organization's obligation to use the gift in a certain way should be clear. The document should be as unambiguous as possible on the issue of intended and allowable uses.

Second, the organization should negotiate language that allows the organization to switch to an alternative use where the original purpose can no longer be fulfilled. This can often help avoid court approval for changes.

Third, the agreement should make very clear whether the gift is to be endowed or whether the principal may be expended.

Fourth, the agreement should specify that control over use of the funds, whether for the ultimate purpose or for interim investing, resides with the organization. This language is important for tax reasons and also for alerting donors that they give up control over the gift once it is given. Help donors understand that while you are committed to honoring their wishes, they release their ability to control the use of the funds when they make the gift.

Finally, to ensure that the arrangements will accomplish the intended purposes to the satisfaction of the donor and the nonprofit, each party should involve its own legal and financial advisers in planning the gift and drafting appropriate documents. Nonprofit professionals also should educate themselves about the legal and financial issues related to various instruments.

Whatever form it takes, a well-planned agreement is a two-way street requiring the active participation of and careful listening by both the donor and the recipient. It should safeguard both parties' interests and stand the test of time. The organization should already have gift acceptance policies and procedures in place to help guide staff and inform board members as they decide whether the gift fits with the organization's mission. These policies should also help the organization resolve whether it's feasible to carry out the intentions of the gift.

The first step in formulating these agreements is helping the donor identify the reasons for interest in the organization and larger purposes for making the gift. The role as fundraisers is to help donors sort their options and be clear about their giving plans. Once the goals and preferences are understood, both donor and recipient must be forthright about their visions and capabilities for implementing it.

Make sure the suggested program fits your organization's mission, and don't promise what you can't deliver. It is unethical to accept a gift with the hope that you can later change the donor's mind about its use.

The nonprofit must give the prospective donor a candid evaluation of its capacity and the feasibility of accomplishing what the donor proposes. Part of the fundraiser's job is to help donors set reasonable expectations for what gifts can accomplish. It is important to consider all of the costs of programming beforehand and present them to donors up front, including determining what the organization itself will have to contribute.

A few of the primary costs of donor projects are operating expenses and infrastructure. In their enthusiasm to start programs, donors may ignore crucial associated costs, including planning, management, and evaluation. These expenses may seem less glamorous, but they are vital and should be included in the gift.

The organization should speak with confidence when presenting options to the donor about what it can reasonably accomplish with the gift money. Demonstrate that strong infrastructure is the key to achieving the donor's proposed goals by describing the level of staff support and other infrastructure that will be needed and the associated costs.

Help the donor understand that by choosing to fund programs only, the organization is forced to raise from outside sources the support for costs of implementing the program. And, explain that money for administrative costs is the most difficult type of funding to find. Donors may be more willing to fund operating expenses if they understand that they are central to implementing their chosen program.

But, wait ...

Just as prohibitions on funding infrastructure can make carrying Out donors' plans more difficult, so can other restrictions. Donors currently are demonstrating heightened interest in restricting gifts.

Both the donor and the nonprofit want each act of generosity to achieve its potential, but good intentions can bog down under stifling conditions that limit effectiveness. To the extent possible, the charity should suggest that the donor express intentions as preferences, rather than restrictions. Encouraging donors to be flexible and open-ended with gifts will increase the chances for the continued relevance and fluidity of the gifts over time.

For example, Indiana University had a scholarship fund provided in a donor's will for the benefit of nursing students. The will specified that recipients must be from a particular county, that they must apply for and accept work in that county after graduation, and that they could not receive further funding if they married during their schooling. Because of the restrictions, there were not enough nursing students who either qualified or wanted to accept the funds if they did qualify.

In cases like this, nonprofits must consider:

* What is the donor's larger goal that can be met?

* Is their priority educational or geographical?

* Do the donors want to help particular students specifically or students from a particular county?

You can avoid this guesswork by asking the donors to determine broader giving principles at the outset, and working with them to develop a list of preferences rather than absolute conditions. These can be invaluable when unforeseen circumstances force a change in the original plans and the organization, in good faith, wants to determine how best to use the remaining assets.

One way to help benefactors plan for the unexpected is to create a pyramidal chart listing their philanthropic priorities. The broad base of the pyramid lays out the overall goals, and the goals narrow as the list climbs the pyramid. For example, it might begin with supporting healthcare and progress to improving healthcare access within one state, then to funding a cancer center in a particular town, and perhaps to specific services to be offered by the center.

The written agreement should include provisions for contingencies to ensure the continued viability and relevance of the funds. It is reasonable that the use of the gift may have to change over time, but the donor's original charitable purpose should be maintained as nearly as possible, in keeping with the donor's stated intentions. Here again, fundraising professionals can teach donors about the perpetuity of endowments to help meet changing needs over time.

Another key to maintaining relevancy is to engage the next generation of the giving family. The nonprofit's role in overseeing the gift likely will be much easier if the donor and the organization educate successive generations about the original intent of the contribution or endowment. Work to create a long-term memory of the donation and reach out to new generations as early as possible. Draw them into the organization's work and help them remain vested in the success of the gift and the organization's mission.

Keep the original donor's descendants engaged and informed about the ways the gift is being used and administered. Donors should be encouraged to share these agreements with their children and other heirs. Bring the next generation along with you literally and figuratively -- when it is necessary to make changes, and keep them apprised of new opportunities for fulfilling the donor's intent.

Transparency and communication will go a long way toward maintaining a good relationship based on trust and support, and will make it less likely that the donor's family will grow away from the gift and the organization.

Written agreements can help clarify the roles, responsibilities and expectations of both the nonprofit and the individuals who financially support it. Clearly spelling out the intentions and arrangements in a way that upholds the mission and protects the interests of your organization while also fulfilling the donors' wishes will help guarantee that the original intent of the donors will be protected far into the future.

Eugene R. Tempel is executive director of The Center on Philanthropy at Indiana in Indianapolis
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Author:Tempel, Eugene R.
Publication:The Non-profit Times
Date:Feb 1, 2003
Words:1761
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