Ever wonder how much money Americans donate to charity each year? Giving USA estimates for 2014, the last year for which complete figures are available, that contributions totaled nearly $360 billion. An improving economy resulted in increased giving for the fifth year in a row. This is remarkable when you consider that 72 percent of it came from individuals, whose accountants are no doubt reminding them it is never cheaper to give your money away than it is to keep it.
While Giving USA doesn’t break down the figures, a significant portion of the total charitable donations are paid at the time the funds are committed, often simultaneously. That makes these donations gifts, not pledges. With the remainder, charities get a commitment, but it is a promise to make a gift in the future – a pledge. Your clients may think a pledge is merely a promise, but it may well be a legally enforceable contract.
Charities are thankful that the vast majority of all charitable pledges are redeemed in a timely manner. Only rarely do donors renege, and even then, it is usually the result of a serious financial reversal, incapacity or death. Changing of circumstances for the charity could also result in default. In these instances, the question becomes, is the pledge legally enforceable?
Like most questions relating to contracts, legal enforceability of charitable pledges is a matter of state law, and the law in Florida is well settled. In Mt. Sinai Hospital of Greater Miami, Inc. v. Jordan, 290 So.2d 484 (Fla. 1974), the Florida Supreme Court declined to enforce the unpaid balance of a $100,000 pledge against the estate of the donor. The two elements required to enforce a charitable pledge in Florida are: 1) the document stating the conditions of the pledge must recite with particularity the specific purpose for which the funds must be used; and 2) the donee must affirmatively show actual reliance of a substantial character in furtherance of the specified purpose set forth in the pledge instrument. Id.at 486-87.
This opinion stands after more than 40 years, and is regularly cited by courts in other states. Accordingly, any time your clients decide to make a commitment of any significance to charity, especially for a capital project that the charity intends to finance, the client can reasonably expect to be asked to sign a gift agreement that will recite the specific purpose for which the funds will be used and confirm the charity’s reliance on the donor’s clear and unambiguous promise. The document may directly declare that the gift or any unsatisfied potion thereof shall be a debt of your client’s estate.
It should be noted that currently there are a few states where an unequivocal promise to make a gift is enforceable as a matter of public policy without a showing of consideration or detrimental reliance. Some commentators have observed that this seems to be the direction of the law, but not in Florida.
Some other considerations to bear in mind:
Every charity’s accountants and auditors tell us we must book documented pledges as assets, make every effort to collect them, maintain reserves for uncollectable pledges, and write off uncollectable pledges against these reserves. This is a matter of accountability and transparency, but it also ultimately affects the amount of resources the charity has to fulfill its mission. These requirements are particularly significant in capital campaigns, as the charity may well be seeking to borrow funds for construction based in part on documented pledges.
For obvious reasons, charities are reluctant to actually sue their donors. Donors fully intending to support the charity in the future may be reluctant to sign any form of pledge agreement. Charities often use existing pledges to induce others to give and may well build their annual budgets on the results of campaigns to secure pledges. On the other hand, depending on the circumstance, charities’ boards of directors may see it as their fiduciary duty to pursue the charity’s legal remedies.
You cannot allow your clients with private foundations to use the assets to pay the legally enforceable pledge of a disqualified person – any person in a position to exercise substantial influence over the affairs of the private foundation. That is self-dealing. The same goes for donor-advised funds. The sponsoring charity is unlikely to approve a recommendation for a grant to satisfy a personal obligation of the fund holder and it shouldn’t. This raises issues of donor control, and relieving a donor of a substantial obligation by satisfying the donor’s pledge provides the donor with an impermissible benefit.
We suggest that private foundation principals and donor-advised fund holders not sign formal pledge agreements, but instead, advise the donee charity that they will recommend the necessary grant or grants to the private foundation board or sponsoring charity for the intended purpose.
The resources of The Foundation of the Greater Miami Jewish Federation are available to you and your clients, in complete confidence and without obligation, as you consider this and other issues related to charitable giving.
Understanding the enforceability of charitable pledges may inform your clients as they seek to fulfill their charitable objectives in a tax-wise manner, inspire and engage the next generation of their families and create a lasting legacy. For more information, please contact Foundation Director Steve Lande at email@example.com, or at 786-866-8623, or consult JewishMiami.org.
Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as the Greater Miami Jewish Federation’s Authorized House Counsel. Prior to joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Steve earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Jewish Federation of Greater Pittsburgh.