By Todd Cohen
CHARLOTTE, N.C. — A donor agrees to give a charity $10,000 if the charity can raise $40,000, but the charity fails to meet the challenge because the ailing economy has made it tough to raise money.
Another donor agrees to give a charity stock worth $100,000 but the value of the stock plunges along with the capital markets.
Many gifts pledged to charities are falling short of what donors intended and charities expected as economic woes continue to change the conditions under which the gifts were made.
So donors and charities, often with the assistance of their lawyers or other intermediaries, increasingly are finding themselves negotiating over how to resolve their gift agreements.
Foundation for the Carolinas, which has helped broker those kinds of talks, now has developed a presentation for lawyers and other advisers on the enforceability of charitable pledges.
The presentation, designed by Holly Welch Stubbing, senior vice president and in-house counsel at the Foundation, and by Melissa Kreager, outside counsel at the Foundation and an associate attorney at Johnston Allison & Hord, looks at legal and ethical issues related to the enforcement of charitable pledges.
The key to dealing with pledges, they say, is for both sides to anticipate contingencies in drafting the original gift agreement, and to be flexible when problems arise.
“Donors absolutely do want to honor their obligations,” Stubbing says.
Many common problems that can crop up with pledges can be resolved through negotiations, sometimes requiring legal modifications to the original written pledge agreement, Kreager says.
If stock was worth $100,000 when it was pledged but drops in value, for example, the donor and charity might agree to a payment of $10,000 a year for 10 years, or for the current value of the stock.
To make those kinds of adjustments easier, Kreager says, pledge agreements should address possible contingencies, such as specifying the time-frame for completing a building to be named for a donor, thus avoiding problems if the charity finds additional funds are needed to complete construction.
Pledges also can run afoul of changes in a charity’s charitable purposes, such as a university closing a school for which a pledge had been made, or a donor getting involved in a scandal after a building was named for the donor.
To help address changes in circumstances, charities should make provisions in the pledge agreement that give themselves flexibility.
“The whole point is to draft your pledge agreement to provide for alternative plans and contingencies,” Kreager says.
Stubbing says donors and charities can resolve a lot of pledge problems by being open with one another and recognizing they are partners.
Donors should be “up-front and direct with the nonprofit about where you are and what your proposal is,” while nonprofits should “understand where the donors are and understand their commitments haven’t changed but their circumstances have,” she says.
Indeed, she says, nonprofits should treat those conversations with donors in the same way they initially talked with the donors about making a gift, while “understanding that every one is trying to meet their obligations.”