Steps Charities Can Take to Discourage Personal Gifts to Fund Raisers

Emil Kallina, a Baltimore lawyer, says he has encountered situations at three charities where fund

raisers were named to receive large sums of money in donors’ wills. The charities were all hoping that they could find a way to force the fund raisers to turn the money over to the nonprofit organization or relinquish the gift entirely.

In one case, the fund raiser backed down and declined the gift when confronted by the charity’s officials, says Mr. Kallina. But in the second, the fund raiser quit and walked away with about $50,000. Now Mr. Kallina, who declines to name any of the charities or provide more details, is working with the third organization on a way to develop a legally binding agreement that the organization can use to make it difficult for fund raisers to accept large personal gifts from donors.

While the ethical guidelines issued by many professional fund-raising associations prohibit development officers from realizing personal financial gains through their relationship with a donor, those guidelines don’t have the force of law.

Lawyers say courts might be willing to declare that fund raisers have a fiduciary responsibility to the charity where they work and therefore are required to make the charity’s financial interests a higher priority than their own needs. But even so, they say, it can be an uphill battle to get the courts to make the fund raiser to turn a big gift over to a charity, unless it can be proved that the fund raiser used fraudulent means or inappropriate influence to get the assets.

Some charities hope that they will have legal leverage if they ask their fund raisers to follow an ethics code in which they agree not to accept anything but token gifts from donors.

But some lawyers say such codes are unlikely to hold up in court. They urge charities to develop written agreements or contracts that cover fund raisers even after they leave a charity. Board members and others involved in soliciting gifts on behalf of a charity should be required to sign similar agreements, they say.

Lynda Moerschbaecher, a Carlsbad, Calif., lawyer who is writing a book to help charities craft stronger legal policies, says, “You need a formal agreement that covers everyone working with donors.”

Contract Provisions

Mr. Kallina, who is drafting a contract for fund raisers of the charity that asked for help after a donor made a personal gift to a development officer, says he hopes organizations such as the National Committee on Planned Giving or the Association of Fundraising Professionals will establish model employment agreements that charities could adapt for their own use.

“If charities start initiating these agreements, it would help protect them in two ways: from additional government regulation and from abuses by unethical fund raisers,” says Mr. Kallina. “Charities need to do it.”

Among the provisions that experts say charities should keep in mind when they are drafting contracts for fund raisers:

• Clarify what types of small gifts from donors are acceptable and what disclosures fund raisers should make to their institutions if they learn of a donor’s intention to give them a personal gift that is larger.
• Make sure the contract covers the fund raiser after he or she leaves the nonprofit organization. Mr. Kallina says five years would probably help charities avoid many of the problems they encounter.

  Extending the agreement indefinitely, however, is probably not a good idea, he says: “You need to cut it off at some point.” For example, if a fund raiser who meets a donor in his or her first job goes on to develop a lifelong friendship with that person, which no longer has anything to do with the charity, a personal gift between the two may not be unethical.

• Specify the method by which the fund raiser would transfer a bequest from a donor to a charity, says Mr. Kallina. For example, the contract might say that if fund raisers receive a large sum or other property in a donor’s will, they will declare they have no personal claim to such assets and simply hold them in trust for the charity. The charity would then consult with lawyers and other beneficiaries named in the will to determine the appropriate beneficiary.

  “You may not know who the ultimate beneficiary is right away,” he says. “But you do know one thing: The fund raiser isn’t getting it.”

• Require fund raisers to pay the charity’s legal fees if they break the contract.

Legal Recourse

In cases where charities don’t have contracts with fund raisers, it still may be possible for nonprofit groups to pursue other legal approaches to obtaining money they think they deserve.

Terry L. Simmons, a Dallas lawyer, says that several years ago one of his clients, a religious institution, was upset when it learned that a donor had left a fund raiser a six-figure gift. The institution had no policy in place to prohibit fund raisers from accepting such gifts, he says. However, the institution decided to ask a court to recognize its “equitable” claim to the gift. The courts can recognize such claims when they are persuaded that it would be unfair for the gift to go to another individual or cause.

To pursue the gift, Mr. Simmons planned to ask a court to create a “constructive trust”or an “involuntary trust,” as it is sometimes called. In many states, courts can use such a trust to redirect assets they believe were obtained through deceptive or coercive means.

“Basically, when you sue to do this, you’re making the argument that a transaction has occurred that should be cast another way,” says Mr. Simmons. “The gift was given while the fund raiser was on the payroll and his actions were supposed to result in gifts to the institution, not to himself.”

The matter never made it to court, Mr. Simmons says. He and other lawyers say they are not sure the courts would buy the approach, but, faced with the organization’s attempt to have the gift placed in a constructive trust, the fund raiser ultimately decided not to accept it.

Says Mr. Simmons: “I just remember being disappointed that it took that kind of threat to make this guy do the right thing.”