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Is the hospital foundation legally bound to return our gift if we demand it?

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Is the hospital foundation legally bound to return our gift if we demand it?

My private family foundation gave $500,000 to a hospital foundation’s donor advised fund to be used only to build a specific medical building at the hospital. The hospital partially built the building but then changed its use and scrapped the original plan. We and some other donors have requested that our donor advised funds be returned. Is the hospital foundation legally bound to return them if we demand it? It was very well spelled out what the funds were to be used for.

There is a certain inconsistency in your statement of the facts here. In the ordinary “donor advised fund” a gift is made to a sponsoring public charity (i.e. the hospital foundation here) and the donor retains the right to advise — but not direct — how the money should be used.  Gifts are seldom made to a donor advised fund for a specific purpose of the type you suggest within the sponsoring organization. 

If the gifts were truly made to a donor advised fund, the hospital foundation has an obligation, imposed by the Pension Protection Act of 2006, to notify each donor that it has exclusive control and absolute discretion over the gifts. (See Ready Reference Page:  “Congress Passes Charitable Reforms”) No one should have thought that they could direct the money to a specific purpose.

Even if the gifts were not to a donor advised fund, and even if they were given for a specific purpose, unless the donors retained a right to enforce the purpose of their gifts in a gift agreement, ordinarily only the state Attorney General has standing to seek legal enforcement. In that case, your best recourse may be a public relations blitz.

You can always ask for the money back, and if the donors have a sufficient history (and/or possible future) of major giving, you might get a response. But as a private foundation making major gifts, you have the capacity to obtain in your grant agreement the kind of rights that you don’t appear to have here. You can, in the future, prevent yourself from being in this kind of situation.

Tuesday, June 28, 2011

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