Retracting a Gift Pledge
/It is not uncommon to read news coverage of a major donor rescinding a pledge of a large donation to an institution because they disagree with some aspect of the organization’s activities or because they have had a serious change in their financial solvency. Some donors, large and small, also sometimes seek to retract a donation they already made well after the nonprofit cashed the check. Depending on circumstances, the donor has varying leverage and ethical obligations that may or may not make retracting a gift reasonable.
A few years ago, there was anecdotal reporting that retractions of gifts and pledges were on the rise as more donors objected to how their funds were being used. But because it is usually in the best interest of both the nonprofit and the donor to keep disputes out of the news, relatively little data exists on how often donors try to get their donations back and how successful they are.
Why do donors seek retractions?
Charitable contributions are by definition irrevocable. That means the donor can’t take back the gift and also can’t control how the funds are used, beyond certain permissible restrictions on the purpose of the gift. For instance, you can agree that a gift will go to an endowment fund or to a specific program, but you can’t then control the day-to-day decision-making around how the nonprofit invests or spends each dollar.
That said, if you have reason to believe the nonprofit is misusing funds or not using them for the intended purpose, you may have some standing to retract your gift. If your gift agreement outlined a restricted gift — that is, a gift intended for a specific project or purpose as opposed to an unrestricted gift for general operating expenses — and you have reason to believe the nonprofit is not using the funds as agreed, you may have grounds to ask for your gift back.
But if you simply don’t like how they’re using the funds or don’t like the direction the nonprofit is going, those are not usually legally enforceable reasons to retract a gift. However, because nonprofits generally want to avoid bad publicity and maintain positive donor relations that leads to additional future gifts, fundraising staff may be open to discussing how to resolve your concerns and may even return a gift already received.
Key considerations
Taking back a gift or pledge is uncommon because it inevitably produces considerable negative feelings and potentially bad press for all involved. For donations given for general operating support, there isn’t a lot of standing for the giver to demand the return of funds. Donors giving for specific projects who can make a claim that an agreement has been violated will have greater standing, but that doesn’t mean retracting a donation or pledge is the best way to go. Most donors and nonprofits consider it the last, worst option.
The law favors the nonprofit. Federal law doesn’t require nonprofits to return donations. Individual states have passed laws that relate to donation returns, but the law assumes that a gift is no longer the property of a donor once a charity accepts it. Because nonprofits act in the public interest, state regulators may rule that returning a donation harms the public good. If a nonprofit has been proven to have misused funds or used funds illegally, the donor may have grounds to demand the return of a general support donation. And courts have found in favor of donors when the terms of a donation agreement are substantially violated.
Conversation is the best starting point. If you are unhappy with a nonprofit you have funded, they likely want to know about it and to resolve the situation. Before or instead of asking for a refund, try talking with them. They may be able to address your concerns and find a resolution that feels good to you and the organization. Ideally, you might end up feeling better about your gift after all. If your differences are irreconcilable, it’s possible the nonprofit will offer to return your gift even if they are not obligated to do so.
Size of donation and depth of relationship are big factors. If you make a one-time unrestricted donation of $1,000 to an advocacy organization and later decide you don’t like the positions it takes, you are unlikely to get much of a response if you ask for your donation back. But if you have a long-standing relationship with the organization and have been a major donor, you are much more likely to have your concerns heard, addressed and, perhaps, your donation returned in the hopes that you will regrow your appreciation for the organization in the future. Before you start making demands, be cognizant of where you fit into the nonprofit’s overall donor community.
Factor in whether you took a tax deduction. The irrevocability of charitable gifts is key to qualification for tax deductions. If you claimed a donation as a tax deduction and now want to revoke it, you’ll need to adjust your tax reporting accordingly.
A multi-year pledge is a commitment. The nonprofit to which you pledged has probably made budgets and planned programs with the expectation of receiving that funding on the agreed-upon schedule. But if circumstances have changed and you are financially unable to make a payment as agreed, let the nonprofit know as soon as possible. They will likely want to work with you, perhaps adjusting the payment timeline and/or amounts so that you can honor the intentions of the pledge as best you can.
Taking Action
Before considering retracting a gift or reneging on a pledge, probe your conscience about what you want to say about yourself as a trusted donor and whether or not the organization has truly violated your trust with their actions. If the organization his not been responsive to your concerns and conversation with staff hasn’t assuaged your feelings, these are some of the steps you can take to retract your gift or pledge:
Re-examine the gift agreement. The parameters around retracting a gift are shaped by the gift agreement (if you signed one), state laws and federal tax policy. If you signed a gift agreement, review it before approaching the nonprofit about retracting your gift. You’ll want to be aware of any terms laid out in the agreement.
Seek professional advice. If you believe you have grounds to retract your gift, and if you have already taken a tax deduction for the donation, you’ll probably want to talk to an attorney and a tax accountant. In the case of a returned gift, you’ll need to adjust your tax reporting. If the costs of obtaining professional advice are greater than the donation itself, you probably won’t want to proceed unless you are truly determined to send a loud message to the nonprofit and its other donors. Depending on the situation, it may be possible to get your money back without going through a legal process, but it’s smart to get some guidance from a lawyer or philanthropy professional before making a request to retract your gift. If you gave through a donor-advised fund, the community foundation or other institution that hosts your DAF would be a good place to start. If you have worked with any philanthropy consultants or have a foundation with professional philanthropic staff, they may also be good resources.
Explore a “gift-over” transfer. If you believe the nonprofit is not using the funds as agreed, one option is to request that it transfer the gift to another nonprofit. This allows you to keep your charitable deduction and to keep the resources working as a charitable gift. This option is included in some gift agreements in what’s called a “gift-over” clause.
