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Endowment Agreements/DAF

  • 1.  Endowment Agreements/DAF

    Posted 21 days ago

    Question regarding endowment agreements.  Should the all endowment agreements be fully binding?

     

    We're having a discussion where the GO wants to remove the binding language of the endowment because the donor wants to pay for the endowment using DAF money.

     

    Do any of you allow establishing endowments using DAF money?  Can the donor make the agreement and then tell us, in the document, that the funds are coming from a DAF?  Are there any red flags here?

     

    Documentation with a recent DAF gift indicated it was to fund the DAF holder's new endowment.  I would think that the endowment agreement would be binding on the donor.  It's really between the donor and the DAF to ensure the money was directed and document properly so it can establish the endowment.

    Thanks

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  • 2.  RE: Endowment Agreements/DAF

    Posted 21 days ago
    UPMIFA laws in your state might address the binding component.  But, while pledges can be non-binding, if an endowment agreement isn't binding then there isn't any umpf behind it.  You, and the donor, can do pretty much anything at any time to the funds.  Which essentially means it's really not an endowment any more:

    "A financial endowment is a legal structure for managing, and in many cases indefinitely perpetuating, a pool of financial, real estate, or other investments for a specific purpose according to the will of its founders and donors."

    Of course, only your Counsel can answer this question for you.  However, your donor cannot enter into any agreement of this nature that forces the actions of another legal entity - at least not without that entity signing the agreement.  I'm confident your CFO would swallow hard before creating an endowment that the person executing the agreement will not be funding.

    I have previously shared language many lawyers have approved for making a pledge binding even when funds are anticipated from another source.  With slight modification, you may be able to incorporate similar language in your endowment agreement.  Here's a stab at that - but do make sure Counsel blesses any of this:

    "The undersigned acknowledge that for this endowment to be fully recognized as an endowment held by [Organization Name], I/we are personally responsible for satisfying the payment terms noted herein.  We may not make commitments on behalf of others.  Should, however, related contributions be received from third parties, [Organization Name] may voluntarily reduce our personal obligation by a like amount."


    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 3.  RE: Endowment Agreements/DAF

    Posted 21 days ago

    Thanks, John.  As I thought.