When the New Jersey Superior Court’s Appellate Division handed down its decision in Adler v. SAVE in August of 2013, the ruling was widely described as precedent-setting because of its conclusion that nonprofits can be required to return gifts should living donors prove in court that the organizations have not honored the donors’ original intent. The Adler decision has catalyzed nonprofits to think about how to prevent costly misunderstandings over donor intent lest they risk losing gifts outright, as well as the goodwill of donors. (See “New Jersey Nonprofit Ordered to Return Gift After Not Honoring Donor’s Intent“)
By now, the basics of the case are well known. Princeton couple Bernard and Jeanne Adler donated $50,000 in cash and stock to SAVE, A Friend to Homeless Animals, a local animal shelter that was planning a new facility, for the purpose of constructing rooms dedicated to the care of older cats and large dogs. The Adlers’ informal gift agreement also secured naming rights to the rooms. However, following the merger of the shelter with another animal care organization, plans for the new facility changed to take advantage of an offer of a parcel of land in another township. The new facility, it was announced, would be much smaller than originally planned. Furthermore — and crucially — the new facility would apparently not include the two named rooms. Unable to reach an agreement with the nonprofit, the Adlers filed suit in county court for the return of their gift. Though the court ruled in the Adlers’ favor, the shelter appealed and the case went before the state’s Superior Court, which ruled decisively for the Adlers — nearly nine years after their initial gift.
Besides abiding by A Donor Bill of Rights, a key to preventing these kinds of problems is the gift agreement, says Kathryn W. Miree, the president and primary consultant at Kathryn W. Miree & Associates, Inc. (www.kathrynmireeandassociates.com ) in Birmingham, Alabama. “The gift agreement determines what happens to the gift and specifies the remedies that apply if something goes wrong. And that, in turn, determines whether you end up in court.”
Miree explains that, because gift agreements are all written differently, it’s important that all parties are aware of their responsibilities and roles. “Things go wrong when any of the parties around the table don’t know enough to represent themselves effectively,” says Miree. “If all three parties are experienced, the process works because you have a balance of responsibility.”
Miree recommends that gift agreements stipulate alternative uses for a gift should plans change, as they did in the Adlers’ case. Donors also may choose to set a time limit on their terms, or to define the intent broadly enough to allow the organization some leeway in how it chooses to use the funds. However, Miree admits, many donors are reluctant to consider alternative uses. “Don’t make the restrictions so narrow that you create a dysfunctional pool of money,” she often counsels donors.
A good gift agreement upholds the rights and responsibilities of all parties not just at the time of signing, but for the duration of the gift. “We can’t outguess change,” says Miree. “It’s important to give a board the discretion to use gifts where there is a greater impact.”
This post was adapted from “Semper Fidelis: How Strategically Stewarding Your Loyal Donors Will Help Your Organization Succeed With the Ongoing Shifts in Charitable Giving,” by Paul Lagasse, Advancing Philanthropy, Winter 2014 (reprinted with permission) You can read the whole article here.