HKSB in the Media
Spreading it Around: Some Tips for Charitable Giving for the Donor and the Non-Profit Recipient
Brooklyn Daily Eagle
October 15, 2007
‘Money is like manure—it should be spread around. —Brooke Astor
When other kids were playing hoops or going out for football, young Louis Anzalone was slowly going blind from a disease called ocular albinism. He worked hard and received help from a low-vision clinic run by Helen Keller Services for the Blind. The non-profit helped Anzalone land a typing job with a small company. He went on to build a successful career with General Electric and eventually retired to Florida with his wife. He has always wanted to give something back to the organization that helped him develop the skills he needed to succeed.
In 2003, Anzalone dipped into his savings and gave Helen Keller Services $10,000 for a Braille embossing machine, which has increased the number and quality of books for the blind. He followed that gift last year with a donation of a quarter-million dollars. In recognition of his generosity, the Hempstead facility was renamed the Louis Anzalone Braille Center. It is one of the primary production and distribution centers for Braille and large-print school textbooks.
“I have learned that life’s toughest obstacles can be overcome with hard work,” Anzalone said at a recent fundraising gala where he was honored by the organization. “They [Helen Keller Services] were there when I needed it, with kind words and trust,” Anzalone said. He said humbly that if he had had more books, he might be more eloquent. “If any one child can benefit…, then I have accomplished everything I ever wanted.”
In this Q&A, Kathleen McCormack, a partner at the Brooklyn Heights-based law firm of Cullen and Dykman, LLP, explains some finer points of “restricted gifts.” By taking certain steps, a donor can specify how a gift will be used, even if the gift is posthumous. Sometimes, a gift outlives its purpose; when this happens, an institution must take certain steps to use the funds.
What does it mean to say a gift or bequest comes with restrictions?
Generally it just means that the donor has placed certain restrictions on the gift or bequest which an organization must acknowledge and follow if it accepts the gift or bequest. For example, a gift to a university might be restricted to scholarships for needy students, or be merit based; or a gift to a medical center might be restricted to the support of research in a particular area, etc.
If it is impossible to clarify restrictions issued by the donor because the donor is no longer living or can not be reached, how should an organization interpret the restrictions?
This is where a cy-pres proceeding could be utilized to obtain the court’s approval of any interpretation or modification of the restriction, so that the donor’s charitable intent is followed as closely as possible. The Attorney General’s consent to the proposed modification may be given great weight by the court.
Is it ever OK to violate a donor’s restrictions? What if they are impossible for the organization to meet?
If the restriction is not a suggested preference by the donor but a true restriction, then it is never OK to violate the donor’s gift restriction without obtaining court and Attorney General approval in a cy-pres proceeding.
What is a cy-pres petition and how does it work?
A cy-pres petition, or, more usually, a “cy-pres proceeding,” is a legal procedure whereby an application is made to the appropriate court [in New York that would be the Surrogate’s Court or the state Supreme Court] for its guidance in the construction or interpretation of the language of a particular charitable gift or bequest when it is ambiguous or impracticable to implement.
One traditional line of cy-pres cases involves gifts to sanitaria or hospitals to address diseases which are no longer a major concern, such as was the case after remedies were identified for tuberculosis or polio, and the need for treatment facilities was substantially reduced. In such cases, where the court is convinced that the donors had a general charitable intent that survived the change in circumstances, the court attempts to construe or interpret the instrument so that the intention of the donor is carried out as closely as possible.
The Attorney General of the State of New York appears in these cases on behalf of the ultimate charitable beneficiaries, and the court will give consideration to the suggestion of the interested parties as to an appropriate alternative charitable recipient. On occasion the donor has named other charitable beneficiaries in the governing instrument and the court decides that they are the appropriate recipients of the gift.
For example, if a donor left a bequest to an organization which is no longer in existence, the fiduciary of the estate could bring a cy-pres proceeding requesting that another organization of similar character be substituted so that the decedent’s charitable intent is carried out. Similarly, if a donor left a gift or bequest with certain restrictions with which an organization was unable to comply, the organization could institute a cy-pres proceeding requesting that the court modify the restrictions so that the donor’s charitable intent is carried out as closely as possible while allowing the organization to utilize the gift.
What was the Smithers case and what are its implications?
The Smithers case involved a donor who left a $10 million multi-year gift to St. Luke’s Roosevelt Hospital for the establishment and support of an alcoholism treatment center.
In 1971 $1 million of the gift fund was used to purchase a freestanding building for a rehabilitation center for alcoholics. In March of 1995, approximately one year after the donor’s death, hospital representatives contacted the donor’s widow and advised her of its plans to sell the building and move the program to a ward in the hospital.
The Attorney General’s office entered into an agreement with the hospital to the effect that it would not object to the sale of the building as long as the hospital continued the Smithers alcoholism program and rehabilitation center in accordance with the original intent of the donor’s gift and contributed $1 million from the building’s sales proceeds into the gift fund.
The Attorney General’s office did not require the entire proceeds to be paid to the gift fund because it was thought that the donor’s original intent did not preclude the sale of the building.
Shortly thereafter the widow sued as special administratrix to preclude the sale of the building without court approval, to enforce the original restrictions of the gift fund to house the rehabilitation center in a freestanding building, and have all of the proceeds of any sale or rental of the building placed into the gift fund.
The Attorney General joined in the hospital’s motion to dismiss the widow’s action on the basis that she lacked standing. In 2001 the Appellate Division, First Department reversed the trial court and ruled that the widow did have standing to enforce the gift restrictions.
The court reasoned that although the Attorney General has standing to enforce charitable gifts, the interest of the donor and the Attorney General are “distinct but related” and “are best served by continuing to accord standing to donors to enforce the terms of their own gifts, concurrent with the Attorney General’s standing to enforce such gifts on behalf of the beneficiaries therefore.”
Before Smithers it was thought that the Attorney General was really the only necessary party in a cy-pres proceeding, since its office was deemed to have standing in the enforcement of donor restrictions on charitable gifts and because once the Attorney General’s consent was obtained it was not necessary to obtain judicial approval.
After Smithers prudence suggests that judicial approval be sought to vary from the language of a gift, even with the Attorney General’s approval. It is thought that the donor now has standing to sue to enforce restrictions on a gift, and it is now more likely that notice of cy-pres proceedings will be given to the donor’s representatives, where that is feasible.