In 2023, following passage of the Donor Intent Protection Act in Kansas, Philanthropy Roundtable launched a monthly series on donor intent developments and controversies nationwide to better inform you about this important topic. The Donor Intent Protection Act has now passed in Kentucky, Georgia and Montana as well, and efforts on behalf of this legislation will continue in additional states in 2025 and 2026.
We encourage donors to contact us with any questions about our featured items and consult additional resources on donor intent at the Roundtable’s Donor Intent Hub. We also welcome any news about donor intent we may have missed.
This month’s Donor Intent Watch includes the first in a series on the importance of choosing the right vehicle(s) for your giving. In this installment, we share the pros and cons of using a charitable trust. We close with a sample of university gift policies offering valuable information to prospective donors.
Why establish your giving vehicle as a charitable trust?
Donors may choose a charitable trust as their preferred giving instrument because its organizational structure and funding guidelines are designed to protect donor intent. Once established, the terms of a trust can only be changed by court order unless a donor permits otherwise. In theory, the rigidity of the trust instrument provides an added buffer against donor-intent violations.
If you establish a trust with clear philanthropic parameters, your future trustees will face an enormous challenge amending that document. Doing so would require legal action involving the attorney general in the state where your entity is established, and trustees would be required to convince the attorney general and the court that the original purpose of the trust is either impossible or impracticable.
In these cases, the courts may invoke the cy pres doctrine to devise a course of action that comes as close as possible to the trust’s original charitable purpose. Courts and attorneys general may vary, of course, in how narrowly or broadly they interpret your intent. But while a charitable trust structure generally offers the strongest shield against legally sanctioned breaches of donor intent, it is not a fail-safe mechanism.
Within the last 50 years, serious violations of donor intent have occurred within charitable trusts, especially when the trust instrument includes vague grantmaking instructions and when future corporate co-trustees with significant voting authority fail to share or recognize the donor’s values. But a careful and determined donor can increase the odds a trust will stay true to its intended mission over time.
Henry Crowell, founder of Quaker Oats Company, established the Crowell Trust in 1927. Nearly a century later, it still reflects Crowell’s values and vision as a grantmaking organization whose $100 million endowment supports evangelical Christian organizations. Seeing other foundations drifting during his lifetime—and witnessing the secularization of his church denomination—Crowell gave great attention to protecting his donor intent.
He clearly defined his intent in writing, not only directing that the trust’s resources be used to promote evangelical Christianity, but also explaining in detail the doctrines that underpin that movement. He structured his trust to be governed by five personal trustees and one corporate trustee and delineated their duties to ensure the personal trustees would have sole responsibility for grant decisions and would also exercise oversight of the corporate trustee.
He also undertook a long and thorough vetting of his trustees, requiring them to submit in writing their values and vision. His original trustees—a majority of whom were personally familiar with his philanthropy—would select their successors, taking care that each future trustee would be “an avowed disciple of Jesus Christ … who unreservedly believes in and subscribes in writing to the objects and purposes of this trust.” At every annual meeting, trustees read aloud the indenture Crowell wrote. And they evaluate grants to ensure mission drift isn’t occurring at recipient nonprofits.
If you choose a charitable trust as a philanthropic vehicle, here are some basic guidelines to protect donor intent:
• DO keep in mind the same rigidity that may serve to protect your donor intent will also prevent you from amending the trust instrument without legal action. If you opt for a trust vehicle you are committed irrevocably to certain philanthropic goals.
• In choosing a financial institution to hold your trust, DON’T assume the close relationships you currently enjoy for your personal or business banking will last through future management changes.
• DO make clear in writing your philanthropic intentions, clarifying your values, your charitable purpose and your operating principles (including spending policy and time frame).
• DO choose your trustees carefully, design a governance structure in which the trustees you select hold majority control and establish a succession process with criteria tied to your donor intent.
• DO work directly with your initial trustees for a period of time so they better understand your values and principles and your preferred strategies for evaluating grantees.
• DON’T leave the mission of your trust to chance.
• DO avoid potential court challenges by specifying alternative funding options for objectives that may be impossible or impracticable to pursue in the future.
• DO take the time to understand the charitable laws and judicial treatment of trusts in the state in which your trust will operate. They vary from one jurisdiction to another.
Read more in Protecting Your Legacy, chapter 4.
Higher Education Gift Policies
In the wake of the October 7, 2023 terrorist attacks on Israel, major donors to some of the nation’s most prestigious colleges and universities staged what was called a “donor revolt,” withdrawing financial support from what had been their most favored grantees – or, at the very least, threatening to do so. In response, Philanthropy Roundtable published Top Ten Tips for Higher Education Funders, advising donors to take these steps when funding colleges and universities:
- Conduct Initial Research
- Find Faculty and Administration Friends and Form Relationships
- Avoid the Traps of Unrestricted and Endowment Grantmaking
- Be Strategic in Funding Aligned Academic Centers
- Consider Creating an Independent Nonprofit
- Consider Shopping Your Proposal to Multiple Institutions
- Consider Less Typical Gifts and Institutions
- Develop a Clear and Comprehensive Grant Agreement
- Seek Advice From Trusted Sources
- Be Patient
A valuable element of the first step not specifically mentioned in the “Top Ten” piece is to consult an institution’s published policy statements regarding gifts and donors. They are typically accessible on an institution’s website and offer useful insights regarding what is and isn’t permissible in gift agreements.
Princeton University, for example, notes in its gift policies, “Gifts to the University must respect the University’s fundamental commitment to academic freedom and the rigorous and independent pursuit of truth. As such, gifts to Princeton do not provide donors with influence over the use and administration of their gifts, nor do gifts afford donors other kinds of influence in virtue of their gifts.”
In the case of restricted gifts, the university advises, “A cy pres, or ‘as near as possible,’ clause in a gift agreement allows the University to use an endowed fund’s earnings for a purpose very closely akin to the original purpose, should the earnings not be needed for the original purpose in the future.”
In explaining its terms for the acceptance of gifts, Harvard stipulates, “Gift terms are required for all new funds established at the University. All terms must be drafted from or conform to approved templates. Certain provisions are required. The University must be authorized to 1) invest, administer and distribute the fund in accordance with its policies and 2) redesignate a fund, working in consultation with the donor, if possible, if the designated purpose of a fund is no longer feasible or appropriate.”
Harvard also lists gift term provisions which are prohibited. The university cannot, for example, be required by a donor to “prevent funds from being used to pay overhead, indirect costs or administrative costs” or “grant the donor the right to enforce the terms and conditions of the gift.”
Regarding gift purposes, Stanford University alerts donors, “Absent stipulations of purpose from the donor, gifts will be recorded as unrestricted expendable funds to support University purposes. If the donor designates a specific purpose for use of the gift (e.g., scholarships, student housing, a particular department, etc.) then the gift is considered to be restricted and the University is responsible for assuring that restrictions on use are honored unless (i) the donor specifically waives the restriction or (ii) court approval to change or void the restriction is granted.”
Cornell University lists the circumstances under which gifts may be declined:
• The gift is restricted and would require support from other resources that are unavailable, inadequate or needed for other institutional purposes.
• The gift is restricted and would not advance Cornell’s tax-exempt mission, support a purpose or program peripheral to existing principal purposes of the institution or create or perpetuate programs or obligations, which would dissipate resources or deflect energies from other programs or purposes.
• The gift would limit, or tend to limit, the academic freedom of the university.
• The gift would injure the reputation or standing of the university, or would generate such controversy as to substantially frustrate and defeat the purpose to be served.
• Acceptance of the gift would conflict with applicable legal requirements.
• The donor’s identity is not revealed to university leadership or staff.
Public universities also make such information public. The gift policies of The University of Texas System are available here, and those of The University of North Carolina at Chapel Hill here.
Familiarity with an institution’s gift policies is certainly not a substitute for personal conversations with its administrative leaders, faculty and development officers. But it will provide valuable guidance in developing the content and structure of those interactions.
