How to make a major donation with the most impact and fewest headaches
By AMY GUTTMAN
As business winds down for the year, nonprofits are just hitting their stride, with up to 30% of all donations made in December. Giving may seem straightforward, but major donations — typically, $50,000 or more — and noncash gifts require planning, due diligence and clear, comprehensive agreements to avoid confusion and conflict.
Bob Benjamin, an estate planning and probate lawyer in the New York office of Wiggin and Dana, shared a cautionary tale of one the first cases he handled more than 20 years ago. A major museum in New York was contesting the will of a woman who had pledged more than $1 million.
“They would flatter her about her African objects, saying if she gave them a million dollars, they would open a room at the museum to display them,” Benjamin recalled. “She signed a will agreeing to give a large donation and gave them a copy. About a year before she died, she changed the will and instead left her entire estate to a private foundation that she created.”
The museum claimed the new will wasn’t valid. After years of litigation, they settled. Benjamin offered to send the museum the artifacts, but they declined.
“It turns out they were worthless — just souvenirs.”
Concrete numbers aren’t available, but Benjamin said these contractual disputes and will contests are common — and costly.
“It’s funny how often, a year or two before somebody dies, they change their mind and change their will,” he said. “These matters are often settled because nobody, especially charitable organizations, wants bad publicity.”
It seems obvious, but hiring reputable, independent counsel to review agreements is paramount, along with due diligence to understand how funds are used. Benjamin advises including an opt-out clause for future donations. Non-cash assets should be appraised independently so donors know the value of their gift.
HIGHLIGHTS
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Hire reputable, independent counsel to review agreements.
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Conduct due diligence to understand how funds are used.
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Build accountability into agreements — desired outcomes, metrics for success, expected results.
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Include an opt-out clause for future donations.
While organizations prefer unrestricted gifts, advisers for donors and charities say agreements should be as specific as possible about the intention behind the gift.
Dana Holt, founder of Holt Consulting in Minneapolis and an adviser to organizations on how to accept noncash gifts, cautions that explicit communication between donor and beneficiary is critical, especially when it involves liquidation.
“A lot of assets are too complex for organizations to manage, so they want to liquidate them immediately,” Holt said. But liquidating assets isn’t necessarily straightforward.
Holt described a case where a donor gave a significant share of a Silicon Valley stock with minimal trading value at the time. The understanding was that the charity would hold the asset until the value increased. But the charity’s gift policy stipulated they sell all noncash assets upon receipt.
When the controlling stake was sold, it affected the share price.
“Obviously, it would have made sense to sell a little bit over time,” Holt said. “Things weren’t documented properly, and maybe those who were on the front end understood this but didn’t communicate it to the people on the back end.”
Just as organizations need to be clear about policies, philanthropy experts advise donors to build accountability into agreements — with desired outcomes clearly communicated — along with metrics for success and expected results.
Audrey Kintzi is the executive director of the master’s program in philanthropy and development at St. Mary’s University of Minnesota in Minneapolis. She once worked with a foundation supporting four nonprofit organizations for an agreed, limited time. Two of them were not delivering.
“Toward the end of the time limit, the benefactor ended their relationship with two of them,” Kintzi recalled. “Benefactors get to do that if the charities are not delivering on the promise. Cutting out two of the organizations gave more resources and longer life to the other two organizations.”
Future-proofing agreements for market volatility and conflict resolution is essential, said Michael Moody, the Frey Foundation chair for Family Philanthropy at the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University in Grand Rapids, Michigan.
“So many things happen in the world that could potentially affect whether the purpose of the gift is being honored or the outcomes proposed are being achieved,” Moody said. “Agreements about approving potential deviations or changes and how any disputes will be resolved are crucial. It’s not always that people are disagreeing; sometimes things happen in the world that require changes.”
In addition, being specific about the intention and outcome, while allowing for different ways of executing the agreement, makes it easier for an organization to weather market fluctuations and other shifts, Moody said. He gave an example where a bear market affected the goals of a scholarship gift.
“This is the kind of change the agreement should provide for,” Moody said. “If you’ve defined the gift as X amount of dollars every year for these five years to these many students, it’s a very specific process with defined metrics. Whereas, if you defined it more broadly as providing scholarships for students to help them achieve a certain career, then you can do less in one year or more in another without violating the agreement.”
Lifespans can work in the opposite way. If a donor’s gift has been invested during a bull market, the returns can extend the life of the nonprofit.
“I’ve seen it happen where the foundation says, ‘Now what do we do?’ ” Kintzi said. A combination of specificity behind the intent of the gift, along with a broad, flexible approach toward impact, can help organizations fulfill donors’ wishes while navigating an ever-changing world.”
