The Dead Hand
We are struggling with our gift acceptance policies, particularly the area where we cover how we will use endowed funds to be established after a deferred gift matures. I honestly don't know where to come down on this one, but I've been told - by my boss, by the trustees - that our charity needs to be able to use the money any way we want if the purpose of the gift doesn't exist someday. But the donor is insisting that she won't make the gift unless we promise that the money will be used - forever - in the way we agree today. What do we do?
You think long and hard about what you can promise. The world of philanthropy is growing more donor-centered than ever, and in many, many ways that's a good thing. The aspect of partnership in philanthropy is, in my view, critical to the essence of a charity's purpose. But that's not what you write about (another time, perhaps).
You've heard of the Princeton case? You've heard of the Sophie Newcomb case at Tulane? You've heard of several other stories where donors - more relevantly, their heirs - are suing charities for not honoring the wishes of their parents, their grandparents, or those of even earlier generations? This is not a small issue and you are right to pay attention to it. A charity, by promising something in perpetuity - a word that has a meaning whose clarity has a fair chance of holding up in court - generally promises more than it can deliver. Not always, but many times. And so charities ought to be cautious.
The best way to be cautious is to insert an escape clause into the gift agreement, something that permits the charity to change the use of the gift's future income if the purpose that motivated the gift no longer is part of what a charity does. When a college accepts an endowment gift for the teaching of English, what happens when America's predominant national language in the year 2110 is Mandarin and no one teaches English any more? We still teach Latin, but who knew back then it would die as a commonly spoken language? Certainly Julius Caesar might have had your head for such a suggestion. (Although there are no surviving records of any of the charitable gift agreements Caesar signed.)
How could Josephine Newcomb or the trustees of Tulane University ever have predicted that a major hurricane would inflict so much damage on the university twelve decades after the gift was made that it would become financially necessary to close the school? That's troubling enough, but an attorney close to the case I spoke with also wonders why Tulane didn't go other routes - applying for a cy pres exception, for example - before unilaterally deciding to shut the school down. The university explains that nothing changed, that the women are still being honored and educated, but part of the gift was to honor the donor's daughter's name - Sophie Newcomb forever.
The concept of forever does battle with a donor's wishes and a charity must make clear this grave fact to donors. Most donors I've dealt with on this topic, once the issue is explained to them, are willing to compromise: "Okay, not forever, but what about 50 years?" Or, "Okay, go ahead and put my gift to some other good use if you guys are ever crazy enough to stop teaching English." Something like that. Most people understand that the dead hand, even theirs, has to loosen its grip sometime. My advice is to make sure you can honor a donor's wishes - and I mean, make sure. If you can't, don't accept the gift. By all means, however, because you never know how a future court will decide, be sure to do your compromising before the gift is made.