On September 3, I attended a presentation on Donor Enforcement of Charitable Gift Restrictions given by Ron Malone, senior litigation partner with Shartsis Friese, at the Bar Association of San Francisco Conference Center.  Here are some of the highlights:

  • Whether a gift is restricted is ultimately a factual question.
  • A charitable gift given and received for a specific purpose can be used for that purpose and none other, absent consent by the donor or a cy pres judgment by a court of chancery.
  • Common law rule:  Only the Attorney General has standing to due to enforce the terms of a restricted charitable gift.
    • Some exceptions:  A co-trustee or co-fiduciary; a person with a special interest, usually a member of a small class of charitable beneficiaries.
  • Donors and their heirs have traditionally been denied standing.
    • But there has been a considerable, but by no means consistent, liberalization of the standing rules.
  • Leading cases:
    • Smithers (NY 2001 – App Div)
    • LB Research (Cal 2005 – Ct of App)
    • Robertson v. Princeton (Mercer Co, 2003 – NJ Chancery Ct)
    • Hershey (Pa 2005 & 2006)
    • Barnes Foundation (Pa 2004)
    • Buck Trust (Marin Co, 1980s)
  • Advice for Drafters of Major Gifts:
    • If restrictions on the gift are important to the donor, don’t assume that the donee will continue to execute his fiduciary obligations with the donor’s intent as his first priority.
    • Don’t assume that the Attorney General can or will vigorously seek to enforce the donor’s restrictions.
    • Use your leverage while you have it — before the gift is completed.
    • Be specific about the restrictions.
    • Require regular and detailed reporting.
    • Stage contributions over time with objective benchmarks.
    • Create a structure that insures standing.
    • Explicitly reserve right in the donor and/or designees to bring suit.
    • Consider a contingent successor charitable beneficiary who will take the gift if the original beneficiary is not using the gift in compliance with the donor-imposed restrictions.