Background
In the May/June issue of Give & Take, The Value of Stewardship, Part 1 of 2: First Do No Harm showed how the acceleration of a bequest intention stewarded unsatisfactorily in the eyes of the donor led to its revocation. What is the nature of the risk to the charity when a donor makes a transformational gift during lifetime and dies shortly thereafter? The gift has been paid in full, the estate administered without objection. The heirs were very supportive of the philanthropic goals. What could possibly go wrong? Let’s examine an interesting case.
Michael Moritz was a nationally prominent corporate lawyer at a global law firm. A grateful scholarship recipient, generous donor and a member of the university’s foundation, he made, in 2001, the largest gift at that time ($30.3 million) to endow four faculty chairs and make 30 annual scholarship awards. The university showed its gratitude by naming its law school after him. Sadly, our donor didn’t live long thereafter, killed less than a year later by a hit and run driver.
The controversy
It took nearly 15 years for the controversy to emerge even though the widow had succeeded her husband on the foundation board. The donor’s son, an alumnus and lawyer, learned the endowment had declined almost 28% from its initial value. The goal of awarding 30 scholarships was not met. The son and his mother also objected to the charging of fees up to 1.3% for fundraising purposes, including the wooing of other donors. Finally, the heirs, without much bargaining power after the conclusion of the administration of the estate, began litigation to reopen the estate.
The university maintained that the son had no authority to enforce the contract; evidently, only the attorney general of Ohio does. The university maintained there was no need for the gift agreements to include references to development fees since the fees were lawful and authorized by the foundation board. Furthermore, the donor’s long-time involvement with the foundation necessarily meant he knew of the existence of the charges against all endowments to cover the development expenses of a multiyear comprehensive capital campaign. As of this writing, the Mortiz family is appealing a decision preventing it from reopening the estate. The Mortiz family says, “We love [the school]. But we can’t sit by and see a $30 million (fund) go to zero.” 1
Planning pointers
There are lessons for both donors and charities.
A. Any fees charged against the income and/or principal of the gift should be clearly communicated, especially for transformational gifts. Charities should be prepared to reduce or eliminate their fees for gifts over a certain amount. A gift acceptable policy should make clear whether the institution has the authority or discretion to depart from regular policy.
B. At a minimum, annual reporting should explain the use of the funds consistent with the gift agreement, including scholarships provided, research supported and professorial salaries paid. An excellent practice would be to designate successor recipients of this and any other communications. Counsel for the donor and heirs should insist on this provision to provide legal standing should issues arise about the gift’s administration.
C. At a minimum, annual reporting should explain how the invested funds compared its benchmark returns.
D. Notwithstanding the depth of involvement and legal sophistication of the donor, it is appropriate to create a record of what the donor agreed to so family members and heirs can be assured all the details of a gift agreement were understood and agreed to by the deceased donor.
By Professor Christopher Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado
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1. See Moritz family challenges Ohio State University for using percentage of endowments to woo more gifts ↵
