Be careful what you ask for: Donors and recipients are contesting what gifts are - and when they can be taken back, reports Fortune's Tyler Green.
(Fortune Magazine) -- It is a sign of poor relations between donor and charity when the donor's heir takes a hacksaw to the charity's filing cabinets.
But it happened, said a curator at the Beaverbrook Art Gallery in New Brunswick, Canada: He told the story at a recent arbitration hearing that will determine who owns about $90 million in paintings. The case has degenerated into a he-said, no-he-didn't fray between the heirs of Canadian-born British newspaper magnate Sir William Maxwell Aitken, known as Lord Beaverbrook, and the Beaverbrook Art Gallery, which he founded in 1958.
The Beaverbrook affair is an extreme but telling example of what happens when donors are not clear about their intentions. Although the case is Canadian, the issues it raises are equally controversial in the U.S. And a new U.S. law that makes it more difficult for philanthropists to be explicit about their wishes and still claim a substantial tax deduction is likely to confuse things further.
The central question in the Canadian case is, What did Lord Beaverbrook intend to do with his art? The trustees of the British-based Beaverbrook Foundation say that Lord Beaverbrook, who died in 1964, meant only 40 of the paintings to be outright gifts. The rest, they maintain, were a loan. In fact, they argued in a legal statement in 2004, the gallery itself "has repeatedly and systematically acknowledged that the U.K. Beaverbrook Foundation owns the Works in Issue."
In 2004 the trustees sued to reclaim 133 pieces. They stated they would allow all but two of them to remain at the gallery for at least ten years but said they wanted to sell the other two - J.M.W. Turner's "The Fountain of Indolence" and Lucian Freud's "Hotel Bedroom" - in large part to renovate the family's English estate, which is part of the holdings of the British foundation.
The gallery argues that Lord Beaverbrook meant all the works of art as a gift; in court documents it cites, among other things, contemporaneous press accounts and the language used on the original export documents. "We are the trustees of the collection for the people of New Brunswick, and the collection is part of the patrimony of Canada," says gallery director Bernie Riordon. "It's a critically important legal issue and an important moral issue. We felt a very strong moral responsibility to our founder."
The hacksaw charge came in an open arbitration hearing in November when a former assistant curator at the gallery, Paul Hachey, told a story he heard from former gallery director Ian Lumsden. Hachey said that Lord Beaverbrook's son, Max Aitken, arrived at the gallery one morning in the 1970s with a hacksaw, and that Aitken had sawed open an office filing cabinet. (Lumsden was too ill to testify, and Aitken is dead.) Hachey also alleged that various records regarding the ownership of works of art appear to have been modified with multiple typewriters. Neither side is giving an inch on the principles involved. Retired Supreme Court judge Peter Cory is expected to decide the case this month.
While the Beaverbrook Art Gallery is fighting to establish donor intent to keep the collection, in many other cases institutions are doing the opposite - selling donated objects to raise money. Either way, the legal trend is clear: Donor intent is a hot issue.
"There are great movements afoot today to allow for deviations or modifications from the trust instrument," says William Schwartz, a specialist in trusts and estates at Cadwalader Wickersham & Taft in New York City who has written about the issue. "At one point, if you made an irrevocable disposition, it couldn't be modified. In extreme cases the court was willing to make a deviation. But there is a trend now, by statute, to allow even irrevocable instruments to be altered or amended. Sometimes that's for the good."
Schwartz notes, however, that many donors are taking a more active approach to their gifts. "They really are looking to achieve certain goals or to be identified with certain projects. And because of that, I think donor-intent problems are going to arrive with greater frequency."
As an issue, donor intent may have had its genesis in 1976, when Henry Ford II complained that the Ford Foundation had strayed from his father's conservative principles. But even though he quit the board of directors in protest, his departure had no effect. Ford, which is America's second-richest foundation, with assets of $11.6 billion, stuck to its leftward tilt - and the philanthropy world took note.
Changes to gifts can also be approved by state attorneys general, who typically have broad oversight over charities. Because AGs tend to consider their first duty to be the protection of a charity rather than the protection of a donor's wishes, they almost always side with the recipient, even if its actions seem to conflict with what the donor had in mind.
Donors and their descendants, however, are applying significant pressure from the other direction. Members of the Robertson family, for example, are in a high-profile battle with Princeton University. In 1961, Charles and Marie Robertson gave Princeton $35 million in A&P stock - then the largest gift in Princeton history - to help the U.S. "defend and extend freedom throughout the world by improving the facilities for training and education of men and women for government service."
The Robertson heirs charge that the university is not fulfilling the stated mission and has used the foundation's assets on unrelated activities. In 2002 they filed suit to sever the foundation, whose endowment is now around $750 million, from the university. Princeton says that the intent of the gift was never that narrow, and that the litigants are "seeking to seize control of money their parents chose not to bequeath to them." The suit is still in the courts.
Congress has stepped in, passing the Pension Protection Act of 2006, which President Bush signed into law. Under this legislation, the more that donors restrict their donations, the more they imperil their tax deduction. The law came about because Congress was concerned about creative uses of the tax code: Donors used to be able to give, say, $10 million to a private charitable fund, take a $10 million tax deduction - and then borrow the money back. "The big question now," says attorney Schwartz, is that donors want both control and the charitable deduction: "Where do you draw the line and reach an accommodation?"
How the new law will play out is a matter of speculation, as donations made under the old rules work their way through the system. Take the case of Georgia O'Keeffe. In December, Nashville-based Fisk University announced that it wanted to sell two paintings the artist had given to the school. The canvases, a 1927 O'Keeffe of New York City titled "Radiator Building-Night" and an important 1913 Marsden Hartley, could bring $10 million to $20 million. Fisk, a prominent, historically black university, argued that it needed the money - its entire cash endowment is less than $10 million - and that it did not have the resources to protect the paintings.
But should art be treated as an economic asset to be cashed in whenever a school wants to build a science lab? O'Keeffe gave gifts from her own collection (and also from the estate of her husband, Alfred Stieglitz) to museums such as the Art Institute of Chicago, the Metropolitan Museum of Art, and the National Gallery of Art. By giving art to Fisk, she was apparently trying to include an African-American institution in her dispersal of early American modern art.
"That's the great difference between giving money and gifting a work of art: Art is unique as an object," says Los Angeles Times art critic Christopher Knight. "The donor could have sold the painting and given the cash. But because it's a unique object, the donor wants it in the public realm." It was on that basis that the Santa Fe-based Georgia O'Keeffe Museum sued Fisk in an effort to stop the sale.
In mid-February the two sides, in consultation with the Tennessee attorney general, struck a deal: The university has until March 17 to come up with donations to keep the paintings at Fisk. If that doesn't happen - and it's unlikely - the O'Keeffe Museum will buy "Radiator Building-Night" for $7 million for its own collection, and the university will be allowed to sell the Hartley. (The terms are subject to court approval.)
The most notorious donor-intent case involves the Barnes Foundation. A consortium of Philadelphia foundations, supported by the Philadelphia business and political establishment, has teamed up to move the Barnes Foundation's superb collection - maybe the best U.S. repository of Matisses and Cézannes--from suburban Merion to a yet-to-be-constructed museum in downtown Philadelphia. The move is several years away, but the decision is final.
"The Barnes situation is essentially a nonprofit equivalent of a corporate takeover," says Knight. He argued strongly against the move because he thinks that Albert Barnes's vision, as well as the art, should be preserved. Barnes was a doctor who made his fortune from a patent eye medicine and spent much of it on art. By the time he died in 1951, he despised Philadelphia society, hated the elites at the University of Pennsylvania, and was contemptuous of everyone affiliated with the Philadelphia Museum of Art. He intentionally kept his art away from them all, building his quirky gallery in Merion - and limiting access to it.
"I think with the Barnes board, the donor's intention was just about the last thing on their minds," says John Anderson, author of Art Held Hostage: The Battle Over the Barnes Collection. "I don't even know that they knew what the donor's intentions were." Possibly not: Barnes board chair Bernard Watson's public statements indicate a lack of familiarity with Barnes's wishes. Watson once stated, for example, that the Barnes "belongs" downtown; Barnes himself made it clear that in his view, it did not.
While Barnes was a little eccentric - he occasionally walked through his wife's luncheon parties in the nude - he was no fool. He hired top-notch legal talent, such as Owen Roberts, later a Supreme Court Justice, to ensure that his wishes would be honored after his death. Even so, he failed to protect his intent.
When it comes to money, the living can spend it, but the dead can only recommend. So philanthropists with a point of view are advised to give it all away while they are alive (as Andrew Carnegie tried, and failed, to do) or to put it in the hands of trusted people for a limited period, as Warren Buffett is attempting. Or perhaps they should simply cultivate a philosophical detachment - it will not, after all, be their problem.