This week Philanthropy Roundtable published a new policy primer on the importance of protecting donor intent to encourage charitable giving.
Charities face ever-increasing challenges in supporting the most vulnerable in our communities and donors face challenges in knowing their money will be used the way they intend. Ensuring the resources are available to meet these challenges depends on maintaining the trust of donors. Laws and regulations should reflect this—this is where the importance of donor intent comes into play.
When donors make gifts to charities, they often do so with specific purposes in mind. A written gift agreement typically outlines the donor’s wishes, providing a clear and enforceable set of instructions for the use of the donation.
More than just a contractual issue, a donor’s intent is also a reflection of their values and principles. In this sense, gifted funds to an endowment represent a donor’s legacy, which underlines the importance of preserving the integrity of donors’ principles and values, even after they have passed away.
Unfortunately, history offers an abundance of examples of philanthropists whose charitable intentions were manipulated or disregarded over time. To make matters worse, there is often no legal recourse to enforce this intent once a donor gives money to a charity.
A notable example of disregarded donor intent is the case of the Robertson family and Princeton University. In 1961, Charles and Marie Robertson donated $35 million to Princeton to establish a graduate school focused on public and international affairs. The gift included specific instructions for preparing graduates for careers in government service, specifically in the areas of international relations and affairs.
By 2002, the Robertsons endowment fund had ballooned to $900 million. However, the descendants of the Robertsons discovered that less than one in five graduates were entering government careers as the Robertsons had intended. Worse yet, a forensic audit revealed that over $100 million of earmarked funds had been misused by Princeton.
A settlement was eventually reached returning $100 million to the Robertson family, but notably Princeton got to keep the remaining $800 million in endowment funds even after willful violation of donor intent.
A more recent example is the case of Michael Moritz and The Ohio State University (OSU). In 2001, Michael Moritz gave a $30.3 million gift to his alma mater with specific instructions to establish a permanent endowment supporting 30 annual full-ride law school scholarships. Fifteen years after donating the gift, Michael’s son Jeff discovered the endowment held less than $22 million, with around $3 million spent on OSU development operations.
Adding insult to injury, OSU only provided 12-16 scholarships per year (not 30 as agreed). As a result, over 300 law graduates paid full price for a legal education that should have been financed by the Moritz Merit Scholarship.
Fidelity to a donor’s intent signals to other philanthropists that they can rest easy knowing their gifts will serve the causes that best align with their values and their philanthropic intentions will be honored. In this sense, disregarding or manipulating donor intent leads to lower levels of trust, which in turn can lead to lower levels of generosity.
The importance of trust between donors and those entrusted with donors’ gifts cannot be understated as a vital foundation of philanthropy, generosity and a thriving civil society.
In order to maintain trust between donors and charitable beneficiaries, state policymakers can provide a legal pathway for the enforcement of written endowment agreements.
With such protections in place, donors can give freely and generously without concern that their mutually agreed upon instructions will be violated. Protecting donor intent and bolstering trust between donors and beneficiaries ensures charities can continue to provide the support many in our communities depend on.