Article Archives >> Lead Stories >> December 1-31, 2009
Court Refuses to Approve
Change in Purpose of Gift
When Hospital failed to show terms of original gift,
Court was unwilling to decree a new purpose
A trial court in Rhode Island has refused to approve the change in use of an endowment fund when the hospital seeking the decree was unable to produce the original documentation or any other evidence of the fund’s purpose. “Without a showing of the original purpose of the gift,” the Court said, “the Court will not find that the purpose of the fund is now obsolete.” (Rhode Island Hospital v. Lynch, Superior Ct., Providence, P.M. No. 2009-6120, 11/23/09.)
Rhode Island Hospital had received a gift from U.S. Sen. Jesse Metcalf, who was an active supporter and a board president before he died in 1942. Over time, other donors and members of his family made additional donations. It was being used, according to the Court’s opinion, “to purchase radium for the treatment of cancer.”
The Hospital claimed that radium was no longer used for brachytherapy, a type of cancer treatment, and asked to be allowed to use the fund to purchase new materials and equipment for care of brachytherapy patients, clinical research, and professional travel. The Court said that the Hospital had not shown whether radium is still used at all, whether the gift was limited to brachytherapy, or what the modern treatments are.
The Court noted that the state had recently adopted the Uniform Prudent Management of Institutional Funds Act (See Ready Reference Page: “New UPMIFA Sets Rules for Management of Charitable Funds”), which permits a court to modify the terms of a gift if a restriction becomes impracticable or wasteful or if, because of unanticipated circumstances, a modification “will further the purposes of the fund.”
“Here, the hospital failed to locate any trust agreement, gift instrument or hospital minutes establishing the fund, or setting guidelines for it. In fact, the hospital produced no evidence at all,” the Court wrote. “There is no indicia of when or how the fund was established, no evidence establishing the treatment type is obsolete or changed, no evidence concerning Senator Metcalf’s goals with the fund, or his overall intentions. The Court … is reluctant to presume that no written guidelines or reports exist. Without some showing, the Court will not draw such an inference.”
“It would be inappropriate for the Court,” it wrote, “to presume that funds dedicated for the specific purpose of purchasing radium for cancer treatment can now be redirected to professional travel expenses and other causes. While these uses may be consistent with Senator Metcalf’s personal goals, or the explicit provisions of this gift, there has been no showing for the Court.”
YOU NEED TO KNOW
There are obviously lots of long-established charities that can’t produce documentation for gifts made 60, 80 or 100 years ago. In many cases, the only evidence of the purpose of the fund is simply the fact that it has “always” (i.e. for many generations of CFOs) been used in a certain way. In today’s climate of increasing transparency and accountability, including the Form 990 question about record retention policies, it seems much less likely that a charity will fail to maintain a record of the terms, conditions and purpose of restricted charitable gifts.
But in seeking to modify the purpose where documentation does not exist, the charity ought to be able at least to show that the traditional use is no longer practicable. Apparently the hospital failed to do even that in this case.
Article Archives >> Lead Stories >> December 1-31, 2009
