When Unhappy Donors Want Their Money Back

By Charlie Wells for the Wall Street Journal

person on a tractor, gift agreementDisappointed Gift Givers Increasingly Are Asking For—and Getting—Refunds From Charities

For most people, giving money to charity feels great.

Asking for the money back is a whole different story.

Yet philanthropy experts say donors increasingly are doing just that: requesting “refunds” on gifts they feel have been misused, ignored, or spent in a way that strays from their original reason for giving.

“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.

The ease of accessing financial data on the Internet, as well as a string of high-profile court battles involving donors seeking refunds, are behind the shift, he and others say.

“Twenty years ago, there was just no information market for nonprofits,” says Chuck McLean, a vice president of research at Guide Star, which publishes data on charitable institutions. “Nonprofits would just tell you what they wanted to tell you. And that was that.”

As the changes continue to unfold, there are a few key points donors should keep in mind:

Gift Rules Can Vary

One of the main problems facing refund seekers is the conflicting—and often confusing—information available on how charitable gifts are regulated.

Historically, U.S. law has operated on the principle that “once a gift is given, it can’t be taken back,” says Robert Bennett, a professor of law at Northwestern University who teaches a course on contracts.

These days, however, the thinking on gifts is in a transition period, says Winton Smith, a lawyer who works with charitable organizations to set up planned-giving programs. Some courts are beginning to give donors more power over their gifts after they’ve been given.

Still, charitable-gift enforcement varies by state; different courts have different rules on whether a donor has “standing,” or permission to bring a dispute before the court.

“About 30 states have the Uniform Trust Code, which authorizes donor standing to enforce a charitable trust,” says Robert Sitkoff, a professor at Harvard Law School who studies wills, trusts and estates. But “a New York court has gone further, recognizing donor standing to enforce other kinds of charitable gifts, too.”

Craft an Agreement

The best way to protect your right to a refund is to draft a charitable gift agreement before making the donation, Mr. Smith says.

In an ideal world, such an agreement would include a “gift over” clause permitting the donor to request a transfer of a misused or unused donation to a different charity, one willing to carry out the donor’s original intent. There is less awkwardness, confusion and ill will if you tell a charity to give the money to another charity, Mr. Smith says.

Such agreements should give donors the right to go to court to enforce the terms of the gift, he says.

They also should protect the donor’s right to a jury trial, says Tim Newell, a 56-year-old from Hunterdon County, N.J. who lost a legal battle when Maryland’s highest court declined in 2013 to take up a dispute involving Belward Farm, a 138-acre land gift his late aunt, Elizabeth Banks, made to Johns Hopkins University in 1989.

The dispute over development of the farm was decided by a judge rather than a jury, a legal strategy Mr. Newell now says was a mistake. “There isn’t a doubt in my mind we would be in a completely different position if we had gone before a jury,” he says.

Johns Hopkins says it is grateful to Ms. Banks and her relatives for their generosity and is abiding by its agreement with them. “We have lived up to, and will always live up to, our agreement with them,” spokesman Dennis O’Shea wrote in a statement.

Talk It Through

While detailed gift agreements are a good idea, they aren’t the only way to prevent or resolve disputes.

Many disagreements between a donor and institution can be settled by having a rational conversation, says Eileen Heisman, chief executive of National Philanthropic Trust. She recommends focusing on finding the root cause of the dispute.

“Ask yourself why you are having these dissatisfied thoughts,” she says. “Are they emotional or intellectual? Are they actually based on what the charity is doing, or is this a personnel issue?”

When having this conversation, keep in mind that the charity’s interests aren’t necessarily at odds with yours.

Charities have a strong interest in cooperating with their donors—at least while the donor is alive, says Harvard’s Dr. Sitkoff. Happy donors tend to do something charities love: keep giving them money.

Prepare for the Consequences

Taking back a donation can have unexpected consequences. The biggest is likely to pop up around tax time.

“If you get money back, it’s just counted as income and you pay income taxes on it,” says Jill Horwitz, a professor who teaches nonprofit law at the University of California at Los Angeles. “That essentially undoes the deduction that you got before.”

Whether this will be better or worse for an individual depends on his or her income-tax rate at the time the gift was made, and the rate when the gift was refunded. There is no adjustment made for a changed rate, says Dr. Horwitz.

Perhaps the most important thing to calculate is how taking back a gift might make you feel, says Ms. Heisman, of National Philanthropic Trust. “It all comes down to one question,” she says. “How do you want to be remembered?”

Source: WSJ.com – Mr. Wells is a news editor in New York. He can be reached at charlie.wells@wsj.com.

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 her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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