Every December, articles appear in the financial print media on various aspects of charitable giving. It is no secret to recipient charities and donors that December is a big giving month. Donors completing their year-end tax planning calculate the tax implications of giving, and they would rather make a gift in December and enjoy the benefit of that gift on their 2014 tax return than to make a gift in the first half of 2015 and have to wait until April of 2016 to realize the tax benefit.
This week, the Wall Street Journal printed a series of articles about charitable giving. One that caught my eye mentioned that donors are increasingly asking for refunds on their gifts or not fulfilling pledges. The reason—donors feel that the charities have misused their funds, ignored their wishes, or spent the money in ways that strayed from the original reason for giving.
One of the reasons mentioned in the article for this change in behavior is the ease of accessing financial data on the Internet about nonprofits. In the old days, charities told you want they wanted to tell you and that was it. Today it is relatively easy for a donor to do a little research and find out exactly what the truth is about the spending habits at the charity of their choice. And if a donor does not want to do that on their own, there is a legion of advisers willing to assist the donor in making the contribution of their dreams.
One of the difficulties that donors have in enforcing the terms of their gifts is something called “legal standing.” In law, standing or locus standi is the term for the ability of a party to demonstrate to the court a sufficient connection to, and harm from, the action challenged to support that party's participation in the case. Since a charitable gift is a unilateral transfer from the donor to the charity, establishing legal standing sometime down the road may be difficult if not impossible.
The law in this area varies by state. About 30 states abide by the Uniform Trust Code. This provides the donor with legal standing to enforce the provisions of a charitable trust, but not every gift establishes a charitable trust. In New York, the courts have gone even further in recognizing donor standing to enforce other kinds of charitable gifts as well.
Still, the best way for a donor to have the intended effect on the charity is to take time in carefully crafting the gift instrument—the language that accompanies the gift. Donors should think of a donation as a purchase, in which the donor is buying some intended action on the part of the charity. The negotiation—“I will give you $X if you do Y and Z”—is entirely appropriate.
The greater the clarity of the gift instrument, the greater the chance that the charity will use the donation as intended by the donor. This applies to both monetary gifts and gifts in-kind, and is especially important when the donor intends the recipient organization to use the in-kind gift in their operations rather than converting it to cash.
Development officers, of course, want to avoid situations in which the donor is unhappy. An unhappy donor is certainly not a repeat donor, and one basic tenet of the development business is that it is usually easier to obtain a second gift than it is to obtain an initial one. Development officers should have a clear understanding of how their institutions accounts for restricted gifts and how the institution will likely use the gift. This may require spending a little more time with the CFO and fiscal staff than you thought was in your job description. However, maintaining good donor relations is clearly your responsibility, and understanding the rules and regulations by which the fiscal office is bound will help you do this.
The best time for the donor and the charity to verify that they are on the same page in regard to the use of the proposed gift is before the donor writes the check or signs over the property. Neither party wants to rely on the courts to obtain the intended result.