Community foundations occasionally receive a request for money back from donors of advised funds and organizations that have established designated funds or agency endowments. This article discusses why the proper answer is a firm "no"—and some polite ways to communicate the community foundation's policies. The community foundation need not and should not refund donors' and designees' funds, and it should be clear from the start of any relationship that transfers to the community foundation are irrevocable.
Donors and designated fund beneficiaries offer many reasons for wanting to take their funds elsewhere. A donor may have relocated outside the community foundation's focus area or have developed a closer tie with another charitable organization. The new board of a designated fund beneficiary may decide that it could manage endowment funds better than the community foundation, or the board may wish to spend the funds on projects that it fears the community foundation would not approve.
No matter what the reason behind the request, the community foundation should use the occasion to (re-)educate the donor or designee on the irrevocability of gifts to the community foundation. When funds are transferred to a community foundation, they become the property of the foundation, along with other endowments that are devoted permanently to the improvement of community welfare. A community foundation is expressly designed to outlast individual donors and boards and focus on the ever-changing needs of a local population. If donors and designees felt that the community foundation was little more than a bank from which deposits could be withdrawn at will, the foundation's ability to do long-term good would be threatened.
Most donors and designees will have signed agreements in connection with the funds they have established, and these agreements should clearly set forth the irrevocable nature of the funds. Discussing this agreement—and the reasons behind it—at a face-to-face meeting may help to dissuade a donor or group from pursuing efforts to pull funds. Once the gift is completed, the donor or designee should understand that the fund is no longer "his," "her" or "their" money.
Federal income tax and state law also provide support for the community foundation's stance. An individual donor may need to be reminded that he or she took an income tax charitable deduction for his or her completed gifts to the community foundation. If the donor would truly like to have the money back, it would likely be necessary to file amended income tax returns for the prior years in which such gifts were made. Furthermore, if a donor or designee wishes to make changes in the community foundation's disposition of its own property, a state court order may be necessary. Without the cooperation of the community foundation, this may be difficult to secure.
Despite the best efforts of the community foundation at education and negotiation, the relationship with a donor or designee may have deteriorated so seriously that it makes sense to try to accommodate a request to relocate the funds. If the agreement under which the money is held allows distributions of principal, this can be fairly straightforward; the community foundation board may resolve that the purposes for which the fund is held may be best served by granting it over to another charitable organization. Indeed, so long as the agreement does not expressly forbid distributions of principal, such a transfer may be possible. In any case where a disposition of an entire fund is planned, extensive consultation with the foundation's attorney is essential.
The best way to avoid having a donor or designee request a return of funds is to make clear to donors from the beginning that this will not be possible. If the community foundation downplays this aspect of fund establishment in order to secure a gift, it is setting itself up for future problems.
This content is for Council members only.