Ethics Corner

This is an online resource for ethical questions and answers as they relate to fundraising and planned giving. The NCGPC posts real questions from real people and Doug White answers them. All identities, both of people and places, are kept confidential.

Meddling

Submitted May 10, 2021

Q

I work at an independent boarding school and a donor has told us he would like to establish an endowed scholarship. The general idea is that the scholarship would be offered to a qualified applicant who can demonstrate financial need. All good. But then, in our discussions, he asked if he could take part in the selection process. I know the IRS looks down on this but I don’t know exactly where it lands on this particular question. But, as important, I find it interesting how some donors want so much control over their "gifts." How much involvement is too much?

A

Let me reiterate that this is not a column that dispenses legal advice. There are, however, instances where the IRS has weighed in on the question of specificity and control, and I see your question of a donor wanting some involvement over who receives the scholarship as one relating to both.

First, let’s understand that this is only one strand of several that lie within the broader question of donor intent. Many times donors ask for, and the charity agrees to, restrictions on how the gift is used and administered. Yours is about a donor who wants to help choose the beneficiary of his generosity — and, of course, protect his charitable income tax deduction and avoid a potential gift tax.

In 1993 the IRS ruled (Private Letter Ruling 9322017) favorably for a donor who earmarked his gift to pay a university president’s salary. At the time, the president’s position was vacant and the donor didn’t have a say in naming the next president. The IRS reasoned that the donation was deductible because it was not directed to a specific individual. (Keep in mind that a PLR is only a one-time answer for one person’s question and can’t be relied upon in other situations, even if they are similar.)

In another case, Tripp v. Commissioner, decided in 1964, (yes, a long time ago, but some fundamentals don’t change much), a donor wrote to the director of admissions at Luther College in Iowa, "I am aware that a donation to a Scholarship Fund is only deductible if it is unspecified, however, if in your opinion and that of the authorities, it could be applied to the advantage of Mr. Robert F. Roble, I think it would be constructive." Even though the language was (intentionally?) ambiguous, apparently the word “constructive” doomed the gift. The tax court decided that the gift really was intended for a specific and named individual and therefore not deductible (even though, as it turns out, Mr. Roble was an ideal candidate for a scholarship).

Still, the consensus seems to support permitting some donor involvement. The Whatcom Community Foundation in Washington tells its donors, “Individuals … that establish permanent scholarship funds may be involved in a number of ways, such as participating on the selection committee. However, recent regulations have clarified that donors and related parties may not control the recipient selection process.”

Although an attorney’s voice is essential to sort out the legal issues within your question, it seems safe to say that the levels of specificity and control are the driving variables here.

Once you are satisfied with an interpretation of the IRS parameters of the answer to your question, you still need to determine the ethical parameters. If you decide to permit the donor to sit in on the selection process, you would be wise to define that role. Guidelines might address when he should recuse himself, not only from a decision but from a discussion, and questions might include whether he is related to an applicant and whether he knows a relative of the applicant. There are others, perhaps many others, that your school’s board and administrators may ask as well.

That is to say, there is a point where the donor may ask for too much, and it is primarily up to you to determine where that line is. Of course it would be easier had he not asked, but much in the world of ethical decision-making is not easy.

If you have a question, please feel free to contact Doug White at dwhitepg@gmail.com. While all issues discussed are real, identities are kept confidential.

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Doug WhiteDoug's Bio

Doug White, a long-time leader and scholar in the nation's philanthropic community, is an author and an advisor to nonprofit organizations and philanthropists. He serves as the Co-Chair of the Walter Cronkite Committee at FoolProof, and as a board member of the Secular Coalition of America. He is the former Director of Columbia University's Master of Science in Fundraising Management program, where he also taught board governance, ethics and fundraising. Prior to that, he was a lecturer at and the academic director of New York University's Heyman Center for Philanthropy and Fundraising.

Doug has published five books. His most recent, "Wounded Charity" (Paragon House, 2019), analyzes the allegations of mismanagement made in January 2016 against Wounded Warrior Project. Kate Bahen, the managing director of Charity Intelligence Canada, wrote, "An epic whodunnit. A sweeping sector perspective. A gripping read for everyone interested in the charity sector. The facts behind the news headlines leaves one reeling. How could this happen? Using the dramatic case of Wounded Warrior Project, Doug White addresses the key forces shaping today's charity sector. From his unique perch, he generously shares his insights and those of the sector's thought leaders. Doug White's books should be required reading for charity directors, journalists, staff and donors alike."

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"Abusing Donor Intent" (Paragon House, 2014) chronicles the historic lawsuit brought against Princeton University by the children of Charles and Marie Robertson, the couple who donated $35 million in 1961 to endow the graduate program at the Woodrow Wilson School. The family contended that Princeton abused its mandate to spend the money as the donors wished — and as the university agreed. The Foundation Center had this to say about the book: "Well-plotted with the slow burn of a decades-old frustration, and immensely readable with the fate of hundreds of millions of dollars at stake — to say nothing of the reputation of one of America's most august universities — Abusing Donor Intent is equal parts thriller and cautionary tale."

His three other books are: "The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation's Charities" (Palgrave Macmillan, 2010), "Charity on Trial: What You Need to Know Before You Give" (Barricade Books, 2007), and "The Art of Planned Giving: Understanding Donors and the Culture of Giving" (John Wiley & Sons, 1997), which was awarded the 1996 Staley/Robeson/Ryan/St. Lawrence Prize for Research by the Association of Fundraising Professionals.

He has written several articles for a variety of magazines and periodicals, including Trusts and Estates, the Journal of Gift Planning, Charitable Gift Planning News, and the Chronicle of Philanthropy.

Since 1979 Doug has advised hundreds of charities of all types and sizes — including social service, educational, health and environmental organizations. Today, he works closely with select organizations on ethical decision-making, board governance, and fundraising, as well as with individual philanthropists who want to see their gifts used most effectively.

A graduate of Dartmouth College, Doug worked as the development director at Holderness School (NH). For almost two decades (1982 – 2000) he served on the Capital Giving Committee at Phillips Exeter Academy and as its national chair for several years during that time. He has served in leading roles with two national planned gift and endowment investment firms. As a long-term consultant to Blackbaud, Inc. in the 1980s and 1990s, he developed one of the first planned giving software programs.

In 1995 Doug testified before a Congressional committee in support of the Philanthropy Protection Act, and served as an expert witness for the charitable defendants in a national lawsuit - the "Texas Lawsuit" - that threatened the ability of charities to raise money. He has also since served as an expert witness in other lawsuits relating to donor intent.

Doug is a past member of the Board of Directors of the Partnership for Philanthropic Planning (formerly the National Committee on Planned Giving). In 1996, while on the NCPG board, he founded the national initiative of Leave A Legacy. He is also a past chair of the NCPG Ethics Committee and the 1995 NCPG National Conference. He is a past president of the Planned Giving Group of New England and a past president of the New Hampshire/Vermont chapter of the Association of Fundraising Professionals. He writes the ethics column for the National Capital Gift Planning Council; in 2002 the council presented Doug with its Distinguished Service Award.

Since 1981 he has spoken at over 750 conferences on philanthropy, including the Association for Fundraising Professionals, The Council for the Advancement and Support of Education, the Partnership for Philanthropic Planning, the Association for Healthcare Philanthropy, United Jewish Communities, and hundreds of local professional organizations and planned giving councils, as well as many audiences sponsored by local charities and other groups.

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Doug, a teacher of ethics and philanthropy at Columbia University, states that, "Based on the queries I receive, it is clear that those who have worked in this field, even those who have served charities for many years, have too few places to go to discuss issues that are not covered by legislation or the IRS. This site is meant to address that need."

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