Kansas Passed a Law to Strengthen Enforcement of Donor Intent

This weekend, Kansas’s newly enacted donor-intent protection law will take effect (credit to Paul Streckfus at EO Tax Journal). The Philanthropy Roundtable recently published a policy primer arguing that donors have insufficient recourse under existing law when a charity violates their intent. Anyone who has taught (or taken) a nonprofit law class knows that the struggle between charities and their donors (or more often, the heirs of donors) is at the very heart of charity law. The oldest charitable trust cases are records of heirs and trustees fighting over the use of charitable funds. I’ve found that (like so many things) our intuitions about who should prevail in these battles often depend on whose use aligns best with our own philanthropic instincts and values. But many of the examples described in the Charity Roundtable primer are about simple frustration over the institution’s inability or unwillingness to use the funds effectively for the donor’s intended purpose.

In my nonprofit law class, the most important takeaway is that donor intent is best protected by well-drafted written restricted-gift agreements. In my view, existing law provides a perfectly adequate framework for enforcing well-drafted agreements, but I don’t pretend to understand the issue better than the Philanthropy Roundtable or the Kansas legislature. The Kansas law provides an explicit statutory mechanism for donors to bring a legal action to enforce the terms of their restricted gifts, but it is quite limited in its application.  First, it only applies to gifts to an endowment fund that are accompanied by written endowment agreements containing specific donor restrictions. Second, it only authorizes actions within the first forty years after the date of the agreement (so no prolonged “dead hand” control). Third, it does not permit the award of any damages to the donor or return of any donated funds to the donor. In two of the examples cited in the Philanthropy Roundtable report, the donor was seeking return of their donation. In one of them, the report described how an employee of the institution laughed when the donor requested her funds back. Under the Kansas law, the employee would feel even more certain in their laughter, given that the legislature just clarified that a return of funds is not permitted as a remedy for ignoring donor restrictions. In my view, the law should permit a wide range of possibilities with respect to donor control, since that’s the best way to encourage donations while still allowing existing institutions to use their funds effectively and well. I think existing law generally does that, but it does require a well drafted restricted gift agreement if the donor wants continuing control. In my view, the Kansas law does a pretty good job of providing a statutory mechanism for enforcing donor intent without tipping the scales too far in one direction or the other.

Benjamin Leff