Is there a law that causes the word "pledge" or the phrase “in consideration of the gifts of others” on a properly signed donor commitment form to be a legally binding contract between the donor and the charity?
What causes a “pledge” to become a binding contract is a question of common law precedent that varies from state to state. Although state law normally requires what the law calls “consideration,” a quid pro quo exchange of promises, to make a binding contract, a few states do not require consideration to make a charitable contribution pledge binding. In the states that do require consideration, the charity’s promise to use the donor’s pledge and the gifts of others for a charitable purpose may be sufficient, and some courts have relied on such language. A California Court, however, has said the phrase alone is not sufficient to make a contract for a will. (See Nonprofit Issues®, November 1, 2007.)
Courts have also considered a pledge binding when the charity has relied on the promise and taken some specific action, such as signing a construction contract, in reliance on the pledge. The word “pledge” without more, is not likely to make a pledge binding (except in the few states that don’t require consideration), but there may be ways in which the language of the pledge commitment can create legal consideration even without the quid pro quo exchange. Under Pennsylvania law, the phrase “intending to be legally bound” has been held sufficient to make a pledge binding. (See Nonprofit Issues®, February 1, 2005.) If you want a better chance to enforce the pledge, consult a knowledgeable lawyer before you create the form.
Planned giving sounds complicated, with its CRUTs and CRATs, CLUTs and CLATS, and CGAs. It can be incredibly complicated, but it needn’t be. Keeping it simple may be the best way to start a planned giving program for a charity that hasn’t already put one in place.
This webinar offered a review of major planned giving instruments and a discussion of ones that make the most sense to emphasize in starting a planned giving program. It discussed the advantages of integrating planned giving into an existing development program, targeting the best prospects, getting buy-in from the board that is likely to generate results, and setting a structure to make it all happen.
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