Charitable donors are increasingly requesting their money back, concerned that their funds have been misused or put toward causes they do not support, Charlie Wells reports for the Wall Street Journal.
The shift has been driven, in part, by donors getting more information about how nonprofits put their gifts to use. In the past, "nonprofits would just tell you what they wanted to tell you. And that was that," explains Chuck McLean, a vice president of research at GuideStar, which gathers data on nonprofit institutions.
Related resource: Trustee recruitment and engagement at small, private liberal arts colleges
But now, financial information can be easily discovered online, so donors are asking for tighter control. "Donors are becoming savvier, [and] they are becoming more engaged in how their money is being used," says Doug White, director of Columbia University’s fundraising-management graduate program. However, experts say that some strategies can reduce the possibility of donor-intent conflicts.
Know the rules
In the past, the relevant principle in U.S. law was that "once a gift is given, it can’t be taken back,” says Robert Bennett, a law professor at Northwestern University. But today, that paradigm is shifting. Courts are moving more power into the hands of donors and different states enforce charitable-gift laws differently.
"About 30 states have the Uniform Trust Code, which authorizes donor standing to enforce a charitable trust," explains Robert Sitkoff, a professor at Harvard Law School. And one court has taken that a step further. In New York, the law allows donors to challenge the way institutions spend other kinds of charitable gifts beyond charitable trusts.
Agree on terms
Winton Smith, a lawyer who specializes in charitable gifts, says the best way to avoid donor-intent conflicts is to create a written agreement. One option is to include a "gift over" clause, which allows a donor to have funds shifted to another charity if they feel the money is being misused.
How one community college is trying to win at fundraising: A NYT case study
These agreements give donors the right to take their case to court if the organization does not use the funds toward the stated intent. Donors seeking more protection might also request that any disputes be litigated in front of a jury—as opposed to a judge—because they tend to be more sympathetic to donors.
Talk over concerns
But experts acknowledge that agreements can fail. In those cases, they recommend openly talking through concerns as they arise. Eileen Heisman, chief executive of National Philanthropic Trust, recommends getting to the root cause of the dispute: Why is the donor feeling dissatisfied? Are they emotional or intellectual? Does the problem lie in the nonprofit's actions or is it a personnel issue?
Charities have a strong interest in resolving disputes amicably, because satisfied donors are more likely to give again, notes Sitkoff.
Refunds also hurt donors
When disputes result in gift refunds, the donors themselves can suffer consequences. For example, donors who get their money back will have to pay income taxes on it, notes Jill Horwitz, a law professor at the University of California at Los Angeles.
For others, the consequences are more philosophical. “It all comes down to one question,” says Heisman. “How do you want to be remembered" (Wells, Wall Street Journal [subscription required], 12/14).
Next in Today's Briefing
ACE forms 25-school alternative credit consortium