The Law of Philanthropy in The Twenty-First Century: An Introduction To The Symposium
The Law of Philanthropy in The Twenty-First Century: An Introduction To The Symposium
The Law of Philanthropy in The Twenty-First Century: An Introduction To The Symposium
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1-1-2010
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GOVERNANCE
CHICAGO-KENT LA W REVIEW
[Vol 85:2
its grows louder. The first three papers deal with versions of this question,
providing fresh insights and critical perspective.
Professor Lloyd Mayer's and Brendan Wilson's Regulating Charities
in the 21st Century: An InstitutionalChoice Analysis addresses the choice
of regulator head-on and presents the case for the creation of new statelevel agencies to regulate nonprofits. Their conclusion is the result of their
institutional choice analysis usefully and clearly presented. They note that
governance failures undermine public confidence and trust in nonprofits
and increase the call for regulatory oversight. The three current primary
regulatory bodies (state, federal and self-regulating) have degrees of existing authority and experience, yet they contend that the current players are
inadequate to the goal of better governance. Applying a calculus of authority, rulemaking, enforcement and transitional costs, Mayer and Wilson
conclude the creation of new state-level agencies independent from the
state attorney general would better serve the goal of better governance.
Their work is a helpful review of the existing landscape and a pointed
guide for future discussion.
Professor Melanie Leslie's Helping Nonprofits Police Themselves:
What Trust Law Can Teach Us about Conflicts of Interest views the governance question through the lens of self-regulation and highlights the explicit ongoing problem of conflict of interest or self-dealing in nonprofit
boards. Using social science research on group dynamics, Leslie posits that
the subculture of a nonprofit's boardroom in conjunction with the current
fuzzy conflict of interest standard based on corporate law creates a void of
independent fiduciary judgment. Leslie argues that nonprofits would be
better served by restructuring the law on this question from one based on
corporate law standards to one based on trust law's fiduciary standards.
Leslie believes that a clearly expressed rule that forces disclosure of a conflict, that requires a greater benefit to the nonprofit than a market alternative, and that requires explicit approval, would assist boards in dealing with
conflicts and in internalizing fiduciary norms. While it is debatable whether
trust law fiduciary norms are in fact superior to corporate ones, this article
makes an important contribution by proposing a concrete framework for
boards to analyze self-dealing and to counterbalance the groupthink dynamic present in many volunteer boards.
Professor Evelyn Brody and John Tyler's Respecting Foundation and
Charity Autonomy: How Public is Private Philanthropy? challenges the
fundamental propriety of state regulation of nonprofits. Arguing from the
premise that public involvement in the governance of private philanthropy
can have a corrupting impact on philanthropy, they challenge a common
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form of state tax credits or allocations of gambling revenues. Sidel unapologetically supports the newfound vigor of the non-elite community
foundations in actively seeking control of their endowments and in gaining
legislative assistance to grow their endowments through state and local tax
incentives.
II. TAX
For virtually all U.S. philanthropic organizations and causes, achieving and maintaining tax-exempt status is of significant importance. It enhances fundraising, allows more funds to be used for the charitable purpose
and serves as an imprimatur of legitimacy. The tax rules governing charitable giving and charitable organizations are traceable almost to the beginning of the current federal tax system and over time have become
increasingly complex as abuses have unfolded. The first two tax papers
reflect this "working out" of tax rules, the first in the historic context of
charitable giving with split interests gifts and the second in the new context
of charitable organizations exploring cause-related marketing. The final tax
paper takes a different tack, questioning the continued legitimacy of an
unlimited estate tax charitable deduction and perpetual private foundations.
Professor Wendy Gerzog's The Times Are Not A-Changin ': Reforming the Charitable Split-Interest Rules (Again) authoritatively chronicles
the charitable split interest rules emanating from the landmark 1969 tax
reforms and critically examines how these rules have spawned new opportunities for a mismatch between a donor's deduction and a charity's benefit. Gerzog points out that much of the unintended tax benefits occurring to
sophisticated donors arise from the required use of actuarial tables at the
time of the creation of the trust to value the charitable portion of the trust.
Actuarial tables by their nature are based on the law of averages, but Gerzog points out that sophisticated donors rarely match an average profile and
that, by choosing the time of the gift, type of trust and the property contributed, a sophisticated donor can magnify these benefits. She concludes that
definitional changes to charitable split interests need to be made by Congress in order to re-center the connection between a donor's deduction and
a charity's benefit.
Professor Terri Lynn Helge's The Taxation of Cause-RelatedMarketing examines a contemporary issue of financial importance: the $1 billion a
year industry of cause-related marketing, in which a for-profit enterprise
associates with a charity to promote its business product or service. Like
Reiser's observations on hybrids, Helge notes this blending of for-profit
and not-for-profit creates fundamental tensions, here examined uniquely
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from the academic tax perspective. Helge persuasively documents the tax
uncertainty for the charity generated by cause-related marketing and also
acknowledges a more global concern that consumers may be harmed or
misled by such marketing. Helge develops two key tax areas: first, the unrelated business income tax and second, the private benefit doctrine. She
provides a template for wished for guidance from the Service in the form of
a safe harbor for treating the charity's revenue from cause-related marketing as royalty income (and thus not UBTI) and also addressing private benefit doctrine. In doing so, Helge moves the discussion in a useful, concrete
and productive manner.
Professor Ray Madoff s What Leona Helmsley Can Teach Us about
the CharitableDeduction challenges the status quo of the unlimited estate
tax charitable deduction and the perpetual trust. Madoff uses Leona
Helmsley's estate and its multi-billion dollar charitable bequest for dogs as
the springboard to assert the fiscal inequity and social unfairness of the
unlimited estate tax charitable deduction and perpetual private foundations.
While conspicuously not advocating a particular amount limitation for the
estate tax charitable deduction nor time duration for a charitable trust, Madoff argues that federal tax policy and charitable trusts need clearly defined
amount and term limits in order to ensure that public charitable purposes
are served and not just the donor's private aims for immortality nor trustees' desire for fees and status. It is a call to rethink the fiscal and social
consequences of an unlimited charitable deduction.
III. DONOR INTENT
[Vol 85:2
certain notable exceptions. She then identifies the two primary reasons why
donor's intent may be difficult to ascertain: changing circumstances over
time and, pointedly, that the intent may not be incorporated in the legal
documents. The obvious responses then are to have only short-term restrictions and to "pin it down" in the document. She concludes with three wellreasoned suggestions for drafting. First have a clear statement of intent.
Second, introduce flexibility, perhaps with a direction to consult with family members. Finally, address enforcement, suggesting the technique of
having the charity agree not to contest standing, as standing is a judicial
issue. Gary's article is a masterful presentation of the realities of litigating
donor's intent, framed against the historic and developing rules of obedience, the impact of changing circumstances and forward-thinking concepts
for enforcement, enlivened by five recent high profile cases.
Professor Joshua C. Tate's Should Charitable Trust Enforcement
Rights Be Assignable? examines the fundamental question of who has
standing to monitor a charitable trust. He highlights section 405(c) of the
Uniform Trust Code that specifically grants standing to "the settlor of a
charitable trust, among others." Tate welcomes the addition of settlor
standing as the traditional approach of granting standing to a public official-usually the attorney general-is largely ineffective. Tate uses the
highly intriguing words "among others" to develop a judicial framework
for a settlor's assignability of standing based largely on Langbein's contractarian theory of trusts with additional support from traditional principles
of donative transfers. Like Gary, Tate is aware that the passage of time
poses the most significant challenge to respecting and enforcing donor's
intent. His proposal for a settlor's post-mortem assignment, or alternatively
a self-perpetuating trust protector model, is a new and sound response to a
significant problem.
COMMENTATORS AND KEYNOTE SPEAKER
In addition to the papers provided in this issue, the symposium was
well served by four insightful and energetic commentators. The timeconsuming role of the commentator is to frame the papers' central theses
with clarity and precision, offer concrete suggestions and provide thematic
context. Professors Harvey Dale and John Colombo were the commentators
for the opening panel on governance. Dean David Brennen was the commentator for the afternoon panel on tax, and Professor Nancy McLaughlin
was the commentator for the final panel on donor's intent. All performed
masterfully and efficiently in the limited time allotted to them. The speakers' papers benefited from their comments.
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I. GOVERNANCE