DATELINE: Washington, D.C., January 25, 2010
Of all the articles we have read about philanthropy during the first few weeks of the New Year, the article that has most caught our attention appeared in the Detroit Free Press. Pistons Owner’s Estate Sued for Donation (January 20, 2010), which was penned by L.L. Brasier and brought to our attention by the Chronicle of Philanthropy. The article focuses on an estate’s refusal to...
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honor a $5 million pledge by the late billionaire Bill Davidson. Our initial reaction was the same that we suspect most readers had: What a bunch of jerks the estate’s representatives are being by not honoring the commitment.
But things are not always as they first appear to be. In this case, we have yet to obtain a copy of the lawsuit filed by the charity in question, but we suspect that the representatives of the estate aren’t really being jerks. Instead, we are willing to bet that they are acting like disbursements in any zero-sum gain. Apparently, the representatives of the estate are concerned that there is insufficient documentation to support the claim. Moreover, Mr. Davidson apparently conditioned his $5 million pledge ($200,000 of which was paid while he was alive) on 20 other donors committing to the charity. According to the Free Press article, the representatives of the estate estimate that only 13 donors had committed at the time the lawsuit was filed.
Given these facts, we can understand why the representatives would refuse to pay the claim. If it turns out that they don't have a legal basis for satisfying the pledge, other beneficiaries of the estate could sue them for money that they should not have paid out to the charity.
We would not even be surprised to learn that the representatives of the estate asked the charity in question to sue them so that the representatives could receive direction from a court. That is what we would do if we were a disbursement agent—which is what representatives of an estate are.
As noted, most of what we have written so far is speculation on our part, but we have written it because we want to point out the dilemmas that the representatives of any estate face when administering the estate. Understanding those dilemmas should cause donors to think about the potential problems that can arise if a pledge is unpaid at the time of the donor’s death. We suspect that Mr. Davidson would not be happy to know that a portion of the assets he left is being used to finance this litigation, but he was in a position to prevent that through drafting choices. For example, he might have provided that in the event the pledge remained unpaid at the time of his death, a specified amount would be paid to the charity, with that amount being determined by the number of other donors who had taken up his challenge.
Although charities often are reluctant to make suggestions to a large donor about a major pledge, they should consider raising the potential problems that pledges with elaborate conditions create for the charity in terms of planning for reliable cash flow. They might have asked Mr. Davidson to address those concerns.
Each situation will require a different solution because large donors often impose unique (although legitimate) conditions and restrictions on their gifts. Charities, however, should be less reluctant to discuss the ramifications of those conditions than they probably are. We’d like to believe that most donors who have shown a commitment to a charity will take constructive suggestions about the potential administrative problems that conditions and restrictions might create as helpful input. No donor wants to leave a lawsuit behind.
At end of the day, we suspect this charity will be paid, in part, because Mr. Davidson's widow appears to be committed to her late husband's desires. It is unfortunate that a lawsuit may have been necessary to resolve what are likely technical legal concerns.
We will be watching this suit to see how it is ultimately resolved. Hopefully we will be able to obtain the complaint so we can do more than speculate. Nevertheless, the take-away point remains the same whatever the facts of this case might be: Donors and charities should work together to craft arrangements that fulfill the donor’s intent--each, however, should be represented by separate counsel.
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