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Patricia Annino
Patricia Annino
What You Can Learn From President John Adams' and Georgia O'Keefe's Mismanaged Charities
The importance of donor intent.

May 19, 2011
by Patricia Annino, JD, LLM

In 1822, President John Adams created the Adams Temple and School Fund to benefit the religious and educational interests of the inhabitants of the City of Quincy, Mass. Last month, the Massachusetts Probate Court ruled that from 1953 on, the City of Quincy mismanaged those funds by diverting them to meet the city’s municipal needs and ordered the trustees removed and the City of Quincy to pay almost $3 million back to the trust.

The Adams case is startling. How did trustees and public officials allow the donative intent of one of our Founding Fathers to be hijacked? Of course, John Adams could not have contemplated who the specific trustees of this trust would be from 1953 onwards; and it appears he did not contemplate enough checks and balances to ensure that no matter who the trustees were, the intent would be honored.

More than a century later, in 1953, artist Georgia O’Keefe, donated two paintings to Nashville, Tenn.-based Fisk University. Fisk accepted the gift on O’Keefe’s terms, which were that the university would “not at any time sell or exchange the artworks.”

In the decades since, the paintings have multiplied in value and Fisk’s economic viability has plummeted. The paintings now exceed Fisk’s endowment and insuring and caring for them has become an economic hardship.

Fisk decided to sell the paintings. The Georgia O’Keefe Foundation intervened, insisting that doing so would violate the terms of the donation. The two sides negotiated a compromise: If Fisk sold one painting to the O’Keefe Foundation for $7 million dollars (significantly less than its fair market value), the university could sell the other painting to a Tennessee buyer, but only if the buyer agreed to lend it back to Fisk permanently for display. That way, at least part of Georgia O’Keefe’s intentions — that that her work be displayed at Fisk — would be followed.

The Tennessee attorney general, who is authorized by state law to protect the public’s interest in the case of a charitable gift, decided it was in the public’s interest to keep both paintings in Tennessee. He thus brokered a deal in which the settlement between the foundation and Fisk would be approved only after both paintings were first offered for sale to any buyer who agreed to lend them back to Fisk.

In both of these examples, decades went by in which the trustees did not develop checks, balances and strategies that would have enabled them to honor the donor’s intent. Did the trustees think no one would ever notice or care? That today’s issues would be different since the donor had died a long while ago? Did the trustees rationalize their behavior by saying that the times had changed? Did they think they had the unilateral right to do this without asking an authority such as the court or the attorney general if this was possible?

A donor who accumulates wealth and wants to use it to benefit society has earned the right to decide precisely how her donation will be put to work. Most donors who make these gifts do so to serve a greater purpose — to educate the public or to show the world that art exists or to give hope that there is beauty out there that is available to all. The charitable organization the donor chooses is the means, not the end. It is a conduit, chosen for its ability to do what is necessary to convey the gift to the broader public. As stewards of the gift to the people, charitable organizations cannot abdicate their responsibility to the common good by cashing out the gift to a private donor and turning the money over to a failing university.

When you sit down with your client who intends to make a significant gift to a charity or charitable foundation, you should ask two questions:

  1. What is your intent and how do you intend to protect it?
  2. What mechanisms should the trustees of the charitable organization have in place along the way to ensure that their end of the gifted bargain is upheld?

In addition, the donor and the public should ask (prior to a crisis lawsuit) what responsibility the attorney general should have as public steward to make sure that the intended purpose of the donation remains intact.

Increasingly, charitable organizations are being scrutinized and held to the same standards as private corporations on financial accounting and audit issues. That is as it should be. Why shouldn’t charities, as stewards of countless private donations and beneficiaries of many tax incentives, be required to issue annual reports to the public that disclose their purpose and how they are utilizing their assets to fulfill that purpose? When they accept the donation of an asset for which a tax break has been provided, they should also have to explain what they intend to do to ensure that the gift they have agreed to steward will be handled properly.

The charities mentioned here are not alone. There is a growing problem of charities straying from the desires of their donors and it is a trend that could seriously endanger the country.

Andrew Carnegie, one of the best-known American philanthropic pioneers, said more than 125 years ago, “He who dies rich, dies disgraced.” Private philanthropy is a vital and unique part of America. We are all better off when those who accumulate great wealth give back voluntarily for the common good.

What, then, should your clients do if they are contemplating making a gift to a charitable organization?

  • Make certain that the charity has the trustees and/or directors in place to sustain the gift.
  • Check out the organization’s financial condition.
  • Be specific in your client’s choices. If the charity finds itself in a position in which it has to sell the artwork and your client wants their kept in the public domain, they must decide their overriding goal — giving it to the charity or making it available to the public.
  • In default, where do your clients want their gift to go? Should the charity be permitted to sell it, but only to a museum or public charity? Must it be sold at a fair-market value? Who should approve the sale? What should happen to the proceeds?
  • Should the organization’s history — whether it has been managed or mismanaged — be taken into consideration in determining who should receive the benefit of the proceeds from the art?
  • Set up checkpoints. If a gift is going to be given in perpetuity, (i.e. forever) your clients should not have to wait for 131 years (as in John Adams’ case) to discover that the funds have been mismanaged and diverted from the donor’s intent.

Conclusion

Both you and your clients need to understand that the team in charge of the organization at the time of the gift will not be the same team in the future. Circumstances that may not seem remotely possible at the time must be contemplated and dealt with in the discussion and documentation of the gift.

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Patricia M. Annino, JD, LLM, a nationally recognized authority on estate planning, received the Boston Estate Planning Council’s “Estate Planner of the Year” Award in 2007. She chairs the Estate Planning practice group at Prince, Lobel, Glovsky & Tye LLP. She has been voted by her peers as one of the Best Lawyers in America (trust and estates), a SuperLawyer and a Top 50 Massachusetts SuperLawer. She is a Fellow of the American College of Trust and Estates Counsel (A.C.T.E.C.)

* Forefield Advisor, a PFP Section and PFS Credential benefit, has additional charitable giving resources.  The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder.