Can Donors Control How A Charitable Endowment is Used? MN Court of Appeals Concludes No
A recent Minnesota Court of Appeals decision affirmed that funds like endowment funds, held by charitable organizations, will generally be considered gifts and not contracts.
In 2004 and 2008, Mr. Lindmark facilitated charitable donations to St. John’s University (SJU) to fund an endowment to support a summer fellowship for SJU students. When he didn’t like the manner in which SJU was administering the program, Mr. Lindmark intervened. He argues the endowment fund agreement was a contract and that he had standing (legal authority) to enforce the contract against SJU. SJU argued that the endowment fund agreement was a gift agreement, governed by the terms of Minnesota’s Uniform Prudent Management of Institutional Funds Act (UPMIFA), which became law in Minnesota in 2008. UPMIFA is a model law (adopted by all but one state in the United States) that governs the relationship between donors and charitable organizations with respect to scholarship and similar endowment funds. An issue of first impression (never been decided before in Minnesota or in many other states with UPMIFA) in the case was whether UPMIFA gives standing to enforce compliance with the terms of a fund governed by UPMIFA to donors, or to anyone other than the Minnesota Attorney General’s Office.
Impact on Charitable Organizations
The Court of Appeals issued a decision in the Lindmark case on October 28, 2019, affirming the Stearns County District Court Judge’s decision. Importantly, the Court of Appeals concluded:
- Under UPMIFA, standing to enforce the terms of an institutional fund is limited to the Attorney General and interested persons defined in the law (not donors).
- Minnesota law adopts the Second Restatement of Trusts in concluding that donors do not generally have standing to bring a proceeding to enforce a charitable trust.
- Funds, especially scholarship funds, are institutional funds within the meaning of UPMIFA and not program-related assets.
- An endowment fund is a gift and not a contract where the gift agreement indicates an intent that it be a gift, even where the document requires the charitable organization to use the fund in a restricted manner.
This decision gives nonprofit organizations that hold funds for investment purposes more confidence that, so long as their gift agreements are worded properly, donors will not be able to intervene to direct their use of such funds or bring lawsuit against them alleging breach of the terms of the endowment fund agreement. Charitable organizations should review existing fund agreements and modify (if necessary) their standard template fund agreements to ensure that such agreements will be interpreted as gift agreements rather than as contracts.
For assistance with gift and fund agreements contact one of our nonprofit team attorneys: Heidi Christianson, Ann Novacheck, or Zach Crain.