I am a major fan of irrevocable bequest pledges (another $1+ million one closed last week for a client:) – with the strong caveat to be careful!
Anyway, the topic is really pledges, enforceable or not. If enforceable, what about when the donor dies?
I just wrote a white paper on this general topic (which I will post soon), and plan to also write on the sub-topic of using pledges for bequest intentions.
But, as a preview for my blog readers, check out this bequest story:
In short, a NY charity is “suing” (or, probably more like filing a claim in the probate court and forcing the court to overrule the executor’s decision to deny the claim) the estate of late Detroit Pistons owner Bill Davidson on an unpaid “pledge” of $5 million.
There are a bunch of stories in the press on this one but only the linked article got a little further into the facts. If I were the judge, I would want to see the written pledge agreement. I would also want clear proof beyond a piece of paper that the charity put this binding obligation on their books, provided sufficient recognition in exchange for the promise, really relied on these funds to their detriment…
I don’t pretend to know the legal standard in Michigan on pledge enforceability. In New York, you better have at least given him naming recognition for the pledge.
Anyway, the Crain’s story mentions a contingency to the “pledge” that a number of other families needed to be on board before the pledge would be a real pledge. But, if that contingency is not in the written agreement, and the charity really has a clear, written agreement, I don’t blame them for suing. I wish them luck, though.
The point of this piece, and future ones on the topic, is that it is a good idea to think about what a judge someday will want to see to enforce a pledge (in the absence of being in the will or other testamentary device). Partially, it depends on the law of the state in which the donor resides (and where his/her estate will be probated). If the state courts held that you need “consideration”, you better make sure you gave the donor something and leave proof of it (pictures, of course) in the file. If the state uses the “detrimental reliance” theory, you better show that you really relied on this gift, to your financial detriment.
The other point you should be getting is that legally enforceable pledges, ones that you might actually go after someday, are not necessarily appropriate for high quantities of gifts. It’s the special ones.