Protecting Donor Intent in a New Economy

This past weekend I read two examples of how donor intent may not have been protected in the wake of our new economy.  One involves philanthropythe bankruptcy of a major US city and the other involves the philanthropic legacy of one of Warren Buffet’s originals investors.

The New York Times highlighted an entire new area to be concerned about when thinking about donor intent.  The article highlights that as Detroit files for bankruptcy the collection of the Detroit Institute of Arts (which is owned by the City of Detroit) is a political bargaining chip between Detroit and its creditors. The creditors are taking the stance that the $2 billion art collection must be considered a salable asset.

Detroit’s debt exceeds $18 billion. The Detroit institute is not owned by a nonprofit corporation or trust for citizens but rather by the City itself. The Museum with an estimated 600,000 visitors a year is taking the position that a sale of even part of its collection will render the Museum defunct.

The bankruptcy judge will have his/her hands full as the article points out the issue of the value of the cultural assets goes beyond philosophical or moral arguments and the judge will have to weigh whether the sale of a city’s artworks would have long term economic implications such as, depressing tourism, harming real estate values and the value of other cultural institutions in Detroit.

A former director of the Museum, Samuel Sachs is quoted in the articles as adding if you could sell off Detroit’s hospitals and its universities would you do that to? If you do things like this you are basically spelling the end of the city as an ongoing entity.

For me this is also an interesting commentary on nonprofit law, looking into the future, understanding donor intent and not taking anything for granted. In Detroit’s golden days, no one obviously thought about an entity other than the city owning the art. Detroit was yesterday’s Silicon Valley and there was no thought that the economy was going anywhere but up.

The donors who made the art gifts jumped on that train too and no one contemplated the harsh reality of today. An ounce of prevention is worth a pound of cure, protecting the institution would not have been difficult or novel- the City of Detroit, the Museum and the Donors were blindsided by the present.

The Wall Street Journal highlighted the story of Donald and Mildred Othmer whose original $25,000 (each) investments with Warren Buffett was worth $780 million when Mildred Othmer died in 1998. The Othmers created a $135 million endowment for Long Island College Hospital in Brooklyn NY in the 1990s, to be held in perpetuity and in less than 20 years their gift is virtually gone.

The NY regulators have also authorized the closing of the hospital –which in its heyday was one of Brooklyn’s biggest employers. The endowment was hit over the years to serve as collateral for loans and cover malpractice cases- all in the opinion of the trustees to keep the hospital going.

Warren Buffet is quoted as saying that if the Othmers were alive they would feel betrayed. The legal mechanism the Othmers set up in their will was clear- the funds were to be endowed “to be held in perpetuity and the income to be used only for its general purposes” After the Othmers died, the trustees of the hospital went to court to use the principal, arguing the donors would have wanted the hospital to stay in existence and these funds were needed to do that.

Originally the court allowed $85 million to be used as collateral for loans and the trustees went back several more times for principal invasion.  Warren Buffet is quoted in the article, “The Othmers did not spend huge sums on themselves but instead wanted the money to go back to society. At least one institution could not wait to change the terms under which it received the money”.

As these articles point out, the question of protecting and upholding donor intent as the economy and trustees change continue to be a key challenge. Make sure your intent is clearly stated and that all possible angles of upholding your intent are included.  Make sure to consult an estate planning attorney to make sure your donation is protected.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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