Restricted Gifts: Clarity is the Best Policy

When it comes to large donations for special philanthropic projects or goals, clarity is essential for both satisfied donors and responsible nonprofit organizations. The recent case of Register v. The Nature Conservancy (Dec. 9, 2014), which was decided by a Kentucky federal trial court, amply demonstrates this principle.

The problem began in 2002, when nature-lover and long-time supporter Layton Register made a $1,000,000 gift to The Nature Conservancy (TNC), a nationally respected public charity.  According to court documents, Register and TNC communicated at length about their mutual goal of purchasing Kentucky land known as Griffith Woods.  The purchase was completed later that year, with TNC using Register’s gift plus an internal loan to buy the land for $2,000,000. 

In making his gift, Register expressed an additional goal of continued stewardship and management of Griffith Woods by TNC.  Register’s goal apparently did not pan out.  TNC sold part of the land in 2004 to the University of Kentucky (UK).  TNC sold the rest of the land in 2011 to the Kentucky Department of Fish and Wildlife Resources (KDFWR).   A proposed management partnership between TNC and UK never worked out for UK’s purchased land.  TNC’s additional sale to KDFWR contained few restrictions.  As a result, no portion of Register’s donation ultimately was used to benefit Griffith Woods.  Rather, from TNC’s total $2,000,000 purchase, TNC later received  $2,500,760 in sales proceeds that it used for another land project and for its general operating fund.

The grass clearly was not greener for Register, who by now was a very dissatisfied donor.  He sued TNC for breach of contract, fraud, and other claims, all related to his $1,000,000 gift.  

On a pretrial “summary judgment” motion filed by TNC, the court carefully evaluated the extensive exchange of letters, witness notes, and other evidence relevant to Register’s intentions for his donation and the parties’ understanding about any restrictions thereon.  At the outset, the court recognized that Register may have made a conditional gift to TNC, with legally enforceable restrictions.  TNC did not dispute the legal principle that Register could impose contractual terms for his donation.  Rather, TNC argued that it had met all such terms, by purchasing Griffith Woods.  The question thus was whether TNC had any further obligations, particularly to retain ownership of Griffith Woods or to maintain it as Register originally intended, such as through a conservation easement imposed on a subsequent owner. 

The court determined that Register had indeed intended to make a restricted gift.  Its parameters, however, were unclear.  The court noted the following evidence as highly relevant:  (a) Register’s own words, as reflected in his communications, and the consistency therein; and (b) TNC’s actions in treating his gift as restricted for quite some time.  The court further recognized the legal principle that, although circumstances may change over time (e.g., with new people responsible for leading a nonprofit), “the recipient of a conditional gift is not at liberty to ignore or materially modify the expressed purpose underlying the donor’s decision to give.”  And this is true even if the changed conditions make the agreed-upon obligations burdensome or unwise.

With these legal principles applied to the unclear facts at hand, the court denied TNC’s motion to dismiss the case on such summary basis.  The case thus will proceed to trial (unless the parties can settle), with a jury to decide the factual issues of what restrictions exist and whether TNC has complied with them.  Notably, the court further ruled that if a jury decides in Register’s favor, then he will be entitled to return of his $1,000,000 gift.

What lessons can be learned by responsible nonprofit leaders who wish to cultivate their large donors well and without fear of later controversy? 

First, define all terms of a restricted gift, in a clear and detailed writing. While parties within a charitable context may operate in considerable good faith and with the best of intentions, they nevertheless should treat such significant transactions with all the seriousness due a significant contract.  A good contract reflects a clear “meeting of the minds.”  The written agreement thus should address the following standard contract questions: 

  • What is intended to be given/received?
  • On what terms?
  • Within what specified time frames?
  • By whom?
  • With what/any restrictions?
  • What are the “what if’s” to be addressed, in case of changed circumstances or later problems?

Second, show consideration for donors by taking these extra steps to document the gift well, both for the present and the future.  TNC lost a dedicated supporter through its own lack of attentiveness to detail.  Other nonprofits take note: there is no excuse for sloppiness when it comes to sizeable donations.  In addition, one should not assume that a donor will supply the necessary specificity through its own correspondence.  Nor should a nonprofit leader expect that the donor would acquiesce to a gift’s changed use in the event of changed circumstances.

Third, and on a related note, keep in touch with valued donors! Circumstances may change, making what seemed appropriate at the time no longer so.  Perhaps TNC’s entire philanthropic fiasco could have been avoided if TNC simply had maintained better donor relations with Register.  Even when specific parameters may be ambiguous, as TNC alleged in its case, it may be extremely helpful to ask permission for changing the use of a donor’s original gift.  Such a pragmatic, legally compliant approach is an optimal solution for nonprofits handling restricted donations, thereby showing respect for a donor’s wishes and allowing for mutually agreed gift restriction updates.