When a significant donor passes away, the organizations that donor supported mourn the loss, express gratitude for the donor’s generosity, and move on. Except when they don’t.
Last week the Wall Street Journal published a news item reporting that the Ronald Reagan Presidential Foundation, my former employer, is taking legal action against the estate of the late energy executive Aubrey McClendon, who died unexpectedly in 2016 at age 56 when his car crashed in Oklahoma City. According to the Journal story, Mr. McClendon made a pledge to the Reagan Foundation of nearly $1 million in 2008 and which was largely unfulfilled at the time of his death. The Reagan Foundation is filing a claim as a creditor to Mr. McClendon’s estate.
Last August, the Journal reported that Duke University was also filing a claim against Mr. McClendon’s estate to recoup an unfulfilled pledge of over $9 million.
I worked for the Reagan Foundation during the organization’s Centennial Campaign to raise $100 million in celebration of President Reagan’s 100th birthday in February 2011. I personally solicited large gifts from donors like Mr. McClendon (whose gift was solicited by a member of the Reagan Foundation board, fellow oilman T. Boone Pickens). Many of those gifts were received as campaign pledges to be paid over a period of time and were memorialized using written gift agreements that included language making those pledges legally binding.
In my solicitations, I would make it clear to the donor, before they signed a gift agreement, that the agreement was legally binding, to make sure the donor understood. I would also recommend that the donor have their attorney review the agreement before signing (this rarely happened – and if I were advising the donor as their financial planner, I would favor a non-binding letter of intent rather than an enforceable pledge).
This is not a rare occurrence. Donors renege on gift commitments all the time, even while alive. I solicited a $1 million pledge for the Reagan Foundation from a young donor in the entertainment industry who signed a gift agreement. The Museum installed a plaque with his family name in the donor’s chosen gallery, and we even held a photo-op for the donor and his family in front of the plaque. He never made a single payment on that gift after multiple attempts to collect. Eventually the plaque was taken down and the gallery made available for another donor.
The question, then, is: should a charity sue a donor’s estate to collect on an unpaid gift?
The objection I’ve heard most often is that it would be bad publicity for the charity – make the charity appear greedy – to sue a dead donor for money. She was a little old lady on a fixed income – how could you sue her estate? Bad charity!
That may sometimes be true. But if the gift agreement is properly worded, then it is considered a binding contract, which appears to be the case with Mr. McClendon. Many charities rely on these binding obligations to make financial commitments like starting new construction on a building or undertaking other initiatives.
I don’t fault the Reagan Foundation for attempting to collect on a valid claim in this case – the legal costs to file the claim are minor, and the Foundation has valid evidence to back its claim, according to the Journal story. It is up to the probate judge at that point whether to award the claim or not.
It comes down to this: fiduciary duty. The board of an organization has the obligation to put the charity’s interest above their own. And in the case of a legally-binding pledge for large sums of money, the board has the obligation to pursue it, assuming the legal or other costs don’t outweigh the benefits. The board would be breaching its duty if it fails to at least consider taking such action.
That is a decision every board has to make in these situations, every time.
As for Mr. McClendon’s estate, attorneys claim that his debts exceeded his assets, suggesting that neither Duke nor the Reagan Foundation will see a penny. But both organizations are well within their rights to try.
Questions or comments? Contact me on Twitter @juanros or LinkedIn.