Charitable Donations

Date: April 30, 2014
Author: Robert Pautienus

Charitable DonationsI will make this Charitable Donation, but only if.....

Under Tennessee law, a conditional gift is enforceable according to the terms of the gift. T.C.A. §35-13-103 states that "a gift instrument that specifies the charitable beneficiaries, objects, purposes or subjects of the charitable gift controls the disposition or administration of the charitable gift." (Emphasis Added).

So what does that mean? Simply put, if an individual makes a gift to a not-for profit organization for a designated purpose, then the organization is required to use the gift for the designated purpose. Tennessee courts have held that a recipient of a conditional gift, who fails to comply with the conditions of the gift, forfeits the gift. When the gift is not used in accordance with restriction, the donor has the right to recover the gift from the not-for profit organization.

The concept sounds simple, but in practice, over time, it can get complicated. Years ago I represented a donor who gave a donation to a church for a building project. The check to the church had a designation that it was for the building project, and it was received in response to a building project campaign. Several years passed, fundraising had essentially ceased, and the building project did not begin. The donor requested a return of her contribution. The church's position was that it still intended to complete the building project. It just needed to raise more funds. The parties were able to resolve the matter, but you can see how the issue becomes complicated.

These issues become more difficult when you consider it from a tax perspective. What happens if a donor takes a charitable deduction for the contribution, and then years later the donation is returned? There are definite income tax implications that need to be considered and addressed.

A local story of national interest in this area in the last few years has been Fisk University's legal battle over its right to sell pieces of Georgia O'Keeffe art work donated to the university in the late 1940 and early 1950s. The art work was donated with a restriction that it not be sold and that it be displayed at Fisk University (a conditional gift). Fisk University filed in court seeking permission to sell two valuable pieces of the collection because after more than fifty years it could no longer afford to maintain the collection. After years of legal battles, going all the way to the Tennessee Supreme Court, Fisk University was permitted to sell a 50% stake in the entire collection to the Crystal Bridges Museum in Arkansas.

Whenever a gift is made or received with a condition, there are legal consequences. At Fidelis Law we work with churches, not-for profit organizations and individuals in the area of charitable giving. If you would like more information on operating a church or non-profit organization, or in regards to charitable planning and its impact on estate planning, please call or email us at Fidelis Law.