To Sue or Not, That is the Question!

Your nonprofit has an ironclad gift – in some trust or an irrevocable pledge for a bequest intent.  Things do NOT go as expected and in fact, your institution is entitled to go after someone or an estate to recover funds.

Do you sue?

My experience has shown that nonprofits usually do NOT go after the money.  Who needs an article about your suit in the New York Post?

Well, here is a link to one case where the charity decided to sue (and look where the story is!):

This story is light on details. From what I can tell, UJA NY was named remainder beneficiary of a standard testamentary trust (NOT a charitable remainder trust, which would have actually helped in this case).  Typical non-charitable testamentary trusts allow the income beneficiaries a limited right to invade principal in case of various needs.  Of course, if you read those needs broadly, you realize that not much might be left at the end of the day.  And, this is what happened here!

Wealthy guy’s brother-in-law ends up with control of the trust and he uses it.  Honestly, we can’t tell whether UJA NY has a good case or not.  These things are not very clear and these trusts do offer invasion of principal for its beneficiaries.

What would you do?

Have a great planned giving weekend!

One comment

  1. I don’t have enough information about the UJA-NY case to offer a specific opinion. I’m also not a lawyer. So, I’ll keep my remarks general.

    There are two major considerations that nonprofit organizations should ponder when deciding whether or not to sue an estate:

    First, nonprofit organizations are ethically, and perhaps legally, required to honor and defend the donor’s intent. In some cases, the state attorneys general may also step in to defend the donor’s intent. With the planned gift donors no longer around to defend themselves, charities have an obligation to protect the donors’ interest.

    Second, nonprofit organizations must consider what is in their own best interest. Part of that consideration will be a determination of whether the charity acted on the promise of the gift. Another consideration is whether or not the charity will be materially harmed if the promised gift is not received. In addition, the nonprofit needs to consider how the public and its own stakeholders will react to a lawsuit.

    Here’s a quick story: I was served on the board of a scholarship foundation. An elderly woman died and, in her will, left virtually her entire estate to the foundation. The woman had two adult children from which she was estranged. The children produced a faked copy of a will with the charitable provision removed. They wanted to get their hands on the nearly $1 million. The foundation debated what to do: 1) let the kids collect in full; 2) negotiate a compromise with the kids; 3) aggressively defend the donor’s intent. We opted for the third option. In the end, the court ruled in favor of the foundation. Any feared negative fallout never materialized. Instead, the public and our donors were happy with the outcome and the additional scholarships we would be able to award.

    Engaging in a lawsuit may be the right thing to do, at times. However, it should be a carefully considered last resort.

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