What do country singer Garth Brooks and music legend Ray Charles have in common other than their illustrious music careers? Both gave generously to charitable causes in their hometowns, and both became the subjects of high-profile donor-charity disputes over the intent of their charitable gifts.

In Charles’ case, his foundation gave Albany State University in Georgia $3 million between 2001 and 2002 to build a performing arts center named in his honor. Fast forward 10 years, and the center has yet to be built. Now the foundation is demanding its money back. The university, which has already spent $2 million of the donated funds, insists that the gift was unrestricted, and that they are still trying to raise the additional funds necessary to build the center.  However, the foundation’s president maintains that the gift was explicitly restricted to the building of the performing arts center. Since the center has yet to be constructed, she believes the university must return the donated funds.

Brooks faced a similar situation after donating $500,000 to build a women’s center named for his late mother at the Canadian Valley Hospital in Yukon, OK. When the hospital failed to name the center in accordance with Brooks’ wishes, he filed a breach-of-contract suit. During the ensuing trial, the hospital maintained that Brooks’ gift was sent in anonymously and that the funds were unrestricted. But the court ruled in Brooks’ favor, directing the hospital to not only refund Brooks his $500,000 gift, but to also pay an additional $500,000 in punitive damages.

These stories highlight the serious problems that can result when donors and charities come away with vastly different understandings of how donated funds are to be used. Even when clients have a precise vision for their philanthropy, as both Brooks and Charles did, the terms of their gifts must be so explicitly defined that there is no doubt as to their intentions. Advisors take heed: if the charitable intentions of high-profile celebrities can be misinterpreted then so too can those of your charitably-inclined clients.

Fortunately, there are a few key steps advisors can take to diminish the likelihood that their clients will become entangled in messy disputes over donor intent. Since some of these undertakings may be beyond the scope of your legal or wealth management practice, consider enlisting the guidance of a philanthropic advisor.

·        Donors, and/or their philanthropic advisors, must assess the sustainability of the organizations to which their contributions are made. This due diligence should involve a review of the organization’s financials, governance structure, programs and outcomes. These factors inform donors on how to structure gifts that are responsive to the organization’s needs and capabilities. The more appropriate and “do-able” the donor’s gift is, the more likely it is that his/her intentions will be honored.

·        It also helps when donors have a long-standing relationship with the recipient of their major gift. Recommend that clients initiate a dialogue with organizational leaders. Open communication can pave the way for a mutually beneficial partnership based on trust and mutual respect – ingredients that are essential for effective giving.

·        Encourage clients to solicit a written proposal from the organization outlining the specific activities, timeline and budget for the proposed project.

·        Before a check is written, draft a grant award agreement, complete with mutually agreed-upon terms and conditions, to be signed by both parties. In a situation like that of The Ray Charles Foundation and Albany State University, both parties would benefit from a written agreement outlining: the purpose of the gift, the proposed project timelines, the overall budget not to be exceeded, and requirements regarding the frequency and extent of progress reporting. Such an agreement would clearly state that failure to comply with any of these conditions would result in the return of donated funds. 

When helping clients to craft such agreements, it is important to weigh donor intent with the needs of the organization. The terms and conditions should reflect realistic expectations that will ultimately help – not hinder – the organization’s ability to accomplish their goals. In other words, agreements should be written in collaboration with the gift recipient, as they are as much for the donor’s protection as they are for advancing the organization’s work.  Remember: the future success of any organization depends in part on their ability to be flexible as circumstances change. Conditions placed on gifts are an important tool for donors, but should only be used when there is a compelling reason to limit a charity’s flexibility.

By working with clients to ensure that their wishes are clearly articulated and agreed to by all parties prior to initiating a major gift, advisors can help their clients avoid costly legal battles while gaining their trust and loyalty.