I am working on a case where a nonprofit accepted around $1 million – transferred from an overseas account – around 20 years ago. In the letter of instruction to the bank, it stated that it was a gift. In subsequent letters to the charity, one of which was notarized, the donor again stressed that the funds are a completed gift to this charity.
What went wrong?
The donor immediately offered to invest the funds on behalf of the charity. Their mistake – they let him set up a brokerage account in the charity’s name and gave him carte blanche authority to trade in the account. 20 years later, charity has never touched the funds, $1 million turned into $6 million. And, he also reconnected with family (who he had been apparently looking to cut out of any potential inheritance). Now, he wants his grandchild to receive most of the money – his offer to the charity: “keep the original gift amount and write a check to my grandchild for the rest.”
Oh, this is a mess. The donor, now in his late 80s, still thinks the money is his. And, you know what? He has a point. Yes, legally the funds have not been his since he put them in their account. But, he never took an income tax deduction and they never severed the cord.
Their actions lended credence to his “mistaken” belief that he somehow had some interest in those funds and a court or the attorney general will certainly not appreciate their willful ignorance of basic nonprofit law regarding controlling investments – a clear “no-no” under any circumstances. To boot, charities have no business encouraging donors to impoverish themselves in their favor a charity – it reeks of undue-influence or collusion in tax or other fraud.
The morale of the story: don’t cut corners, don’t cut side deals. Call competent counsel. Your charity may live to regret it. Both sides in this story will be lucky to come away without an FBI investigation of what’s really going on.