When you write a check to a charity, you’re taking a small leap of faith it will spend that money the way you intend. Getting it in writing might give you peace of mind, but if push comes to shove, in most states that gift agreement isn’t worth the paper it’s written on.
A gift agreement is not a contract, and a charitable donation is not a business transaction. That reality has caught many donors by complete surprise over the years, and as Americans become more generous and the charitable community grows, donor intent violations are becoming more common.
Former Wisconsin State Supreme Court Justice Dan Kelly described 22 high-profile cases throughout the country over just the past 10 years in a new research report for Philanthropy Roundtable. In each case, a charity accepted a gift from a donor and promised to use it for one purpose but later used it for something else. Often, the case is simply dismissed for lack of standing. That is the core problem. Donors often do not have legal standing to enforce gift agreements.
The rationale is that charities are meant to benefit the public good, and each state’s attorney general is responsible for representing the public. Therefore, only the attorney general has standing to challenge how charities spend their money. This is less than ideal. Every donor intent violation undermines donor confidence, but not every donor intent violation is necessarily a priority to the attorney general.
Sometimes judges will hear these cases, even though the donor does not technically have standing. This has resulted in an inconsistent and unpredictable legal environment that negatively impacts both donors and charities. What makes this even more complicated is that every state has a slightly different approach to enforcing (or not enforcing) donor intent.
In response, Philanthropy Roundtable has produced model legislation called the Safeguarding Endowment Gifts Act (SEGA). It provides judges with a legal pathway to resolve donor intent disputes in a way that benefits both donors and charities. The goal is to negotiate a mutually beneficial solution where the charity keeps the donation but spends it in a way that matches the donor’s original intent as closely as possible.
Justice Kelly’s research report explains in detail, using real case studies as evidence, why SEGA is the ideal solution to the problem of donor intent disputes. The legislation has already been adopted in Georgia, Kansas, Kentucky and Montana. Check out the full report here.
