Enforcement of Charitable Donation Restrictions

“Enforcement of Charitable Donation Restrictions,” that is the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Susan Snyder, ACTEC Fellow from Chicago. At a recent ACTEC meeting, a panel of ACTEC Fellows discussed “Charities in a Time of Crisis.” Today’s podcast presents the second and final excerpt from that panel. What do donors need to understand when making a charitable donation to a nonprofit? What restrictions need to be considered? Larry Katzenstein, ACTEC Fellow from St. Louis, MO, here discusses scenarios and pitfalls that donors should keep in mind.

We’ve been talking before about releasing restrictions and looking at this, really, through the charity’s eyes, and what I want to do is look through the other end of the telescope and look at this through the eyes of the donor. And what can the donor do who doesn’t want what he’s directed his contributions to be used for, to be changed? Are there ways that that can be enforced from the donor standpoint?

The charities now are often faced with this; for example, it often can be about naming rights. Maybe the building was named many years ago and the charity would like to get that restriction released, but the donor is not around anymore. Family members may be, or there may be a gift given for a specific purpose, and that purpose may no longer be something that the charity wants to do because of various reasons. They may have a donor who’s come along to give a much larger gift for a similar program. They want the program named for them. So, charities are often tempted, with good reason, to try to find ways to accommodate this new donor. So, what I’m going to talk about are ways that donors can make certain that their wishes will actually be followed in the future and often indefinitely. There is really no shortage of recent examples of that. Let me go through some of the cases from the last 10-20 years that illustrate how common this problem is and some of the ways that this had been resolved.

How to Name a Building After Someone – Potential Pitfalls

One of the issues, you may remember, was the case of the University of Houston’s Hoefeinz Pavilion Basketball Arena. The University had a large donor willing to make a large gift to have his name put on the arena and the Hoefeinz family wouldn’t allow their name to be removed. That was litigated and finally resolved. That’s a very common situation; and I might add, at this point, that what I think well-advised charities do is put time limits on these things. Maybe they’ll say the naming right will be for 30 years for this size gift; it will be 50 years for this size gift. In any event, it’ll be until the building has to be renovated in a major renovation or torn down for a new building. So those are things that can be put into gift agreements. 

Another example was the gift from the Robertson family to Princeton University in 1961 to educate a foundation, to educate future diplomats. The donor’s heirs were unhappy with the way Princeton was spending the money and there was a lawsuit. It was finally settled by creation of a new foundation. We will get into how the heirs were able to get standing in a minute, in all these cases, which is often the problem.

Georgia O’Keeffe and her husband Alfred Stieglitz had given a lot of valuable artwork to Fisk University, which wanted to sell them. They needed the money. There was litigation over that perpetual restriction.

Another interesting one that I have some interest in is the gift that Mr. Fisher of Fisher Electronics — you know Fisher stereos/equipment — gave to the New York Philharmonic to build Avery Fisher Hall when it was being constructed in the 1960s. His name, as part of the deal, was to be on the name of the building. It was Avery Fisher Hall for the rest of its life, until recently. And the problem was that it needed to be totally renovated again after 50 years of use; and David Geffen said he would give 100 million dollars to the Philharmonic, but he wanted his name on it. The Fisher family said, “Wait a minute; that’s not the deal we had. Our deal was that our father’s name would be on this building in perpetuity.” That was finally resolved when the Philharmonic raised an additional 15 million dollars to pay to the Fisher family heirs to get them to release that name.

And many of you are familiar with the Barnes Foundation, another example where there was a very specific restriction imposed on a gift, which in the views of the directors of the museum, that was impossible to continue. Mr. Barnes was a very eccentric character. He liked poking his thumb in the eyes of Philadelphia high society. He had lots of restrictions, and he did things that I’m sure were not happily received at the time by the Philadelphia high society he was trying to offend. He established his art collection in suburban Philadelphia. After many years, that really became a difficult site for many reasons, and it was suggested to be moved to downtown Philadelphia. There were years of litigation over that, and it was finally resolved but not until there was extensive litigation. Those of you who work in this field, I’m sure, followed that case with great interest. 

Another one, and this will resonate a lot nowadays – it became very timely, even though I wrote this paper before this —  was that there was a gift of the Daughters of the Confederacy made in the early 20th century for free student housing limited to descendants of Confederate ancestry at Vanderbilt University. The residence hall was required to perpetually bear the name Confederate Memorial Hall. The University wanted to rename the hall because of the obvious negative implications of that designation, and a Tennessee appeals court, and this is in 2005, enforced the donor restriction and would not allow the name to be changed. It would be interesting if that would be true today if they had to decide this case again.

Another final case, and this is one that’s a very recent one, we’ve seen often the issue of the Sackler family. Its name is on many buildings. They were very generous; made many gifts to museums and other cultural institutions. Some of them want to remove that name because of the family connection with the opioid crisis through their company and there’s been litigation in a number of places about removing the Sackler name whether that makes sense or not.

In some cases, you can imagine why a school or university would want to change a name. If we have, for example, a “Madoff Institute of Ethics in Investing” or something like that, you can understand why the university would want to change that name. So, I think again, one way for the charities to deal with this, is by having specific provisions and gift agreements that say ‘if in the future, the name, because of activities that are not known to us at this time, should become an embarrassment and reflect poorly on the institution, we have the right to remove the name.’ I’m seeing that more and more now in gift agreements with donors. (Drafting Charitable Gift Agreements)

Let me also say that, of course, there are always going to be restrictions ind agreements, especially really old ones that are just not enforceable either for practical reasons or for public policy reasons. I remember being involved years and years ago in a bequest to a college. It was to be used for scholarships for Jewish students and the college had a no-sectarian-test provision in its 19th-century articles. So, we went to court and we got a court order that instead the bequest would be used for scholarships for majors in Jewish studies. Not all of those students would be Jewish and so that was acceptable to the court. 

Another one I’ll give an example for, another one that was very early my career that I remember, was a case where it simply became impractical to use it because the use was not needed anymore. And that was the will that had not been updated in many years that was to be used to find a cure/prevention for polio. Of course, that wasn’t necessary anymore. That had been done already, and so I went to court and we got an order to use it for a different scientific and medical purpose.

So those are just a few of the examples. There are more and more cases every day that you can look to and see that donors are trying to enforce the rights and family members are trying to enforce their ancestor’s rights. Traditionally, the problem for donors in trying to enforce their rights is the standing doctrine; and I think it’s because courts looked at these cases as if they were property cases. The idea, I think, was that once the donor had parted with the property, the donor had no continuing ownership interest in the property. This is now the charity’s property, and it would be up to the Attorney General to enforce those rights. So, there are lots of cases like that, where a donor tried to sue for a specific use and the court said, ‘regardless of the merits, this is not a case in which you have standing.’

I hope you have enjoyed Larry Katzenstein’s presentation on Charitable Donation Restrictions. This concludes our two-part excerpt from the ACTEC presentation “Charities in a Time of Crisis.” 

Listen to part one of this two-part series, “Charitable Endowment Funds Restrictions on Borrowing.”

This podcast was produced by The American College of Trust and Estate Counsel, ACTEC. Listeners, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. The material in this podcast is for information purposes only and is not intended to and should not be treated as legal advice or tax advice. The views expressed are those of speakers as of the date noted and not necessarily those of ACTEC or any speaker’s employer or firm. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. The entire contents and design of this Podcast, are the property of ACTEC, or used by ACTEC with permission, and are protected under U.S. and international copyright and trademark laws. Except as otherwise provided herein, users of this Podcast may save and use information contained in the Podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing, of this Podcast may be made without the prior written permission of The American College of Trust and Estate Counsel.

If you have ideas for a future ACTEC Trust & Estate Talk topic, please contact us at ACTECpodcast@ACTEC.org.

© 2018 – 2024 The American College of Trust and Estate Counsel. All rights reserved.