Thinking of Donating to your Alma Mater? Be Careful!

Unless you’re very specific about how you give money to a university, it may not be used for what you had in mind.

H. Dennis Beaver, Esq.'s avatar
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published
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A college campus.
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“My father graduated from a small, private college in the Midwest with a degree in civil engineering. He became a real estate developer, and his company was very successful.

“Dad often said, ‘I want to give back to my school in a big way.’ And then one day – when I was a student at his college – we met with their foundation staff to discuss scholarships and grants for the Civil Engineering Department. He handed the school’s president a check for $5 million. This was five years ago.

“Dad trusted the school to honor his wishes, but unfortunately the letter accompanying his check only said, ‘These funds are to be used for the betterment of instruction in Civil Engineering and related purposes as well as scholarships for needy students.’

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“Substantial amounts of his donation have been used for things like improvements to classrooms, foreign language programs and faculty raises. This is not what Dad wanted. Could he have done anything to prevent that from happening? Thanks for your help.” “Allan.”

A University Development Officer Shares His Opinion

I ran his question by Heath Niemeyer, Executive Director for Development at California State University, Bakersfield.

I asked, “What mistakes by donors have you seen when they make gifts to educational institutions?” He replied, “Plenty! You would be surprised at the number of lawsuits over donor intent, which result in tremendous litigation costs.”

Niemeyer then gave a by-the-numbers list of the things donors do wrong, which can result in great disappointment later on.

1. Assume the best. Fail to specify in a formal agreement that you and representatives of the university sign, your intentions and the university’s commitment as to how your funds are to be used.

Consequences: Your money will used for anything and anywhere, not necessarily as you would have desired. Unrestricted funds can be used for any purpose.

2. Fail to have a current relationship with the school. Do not remain up to date on programs that you want to support.

Consequences: Institutions and people change over time. Academic programs are often dropped due to a lack of enrollments, so your gift may not have a home. To avoid disappointment, it is important to make connections with the departments you want to support.

So, tour the campus, and meet the professors. Visit classes. Do they have the level of academic rigor that you require? If you are granting scholarships, have the school arrange for a meeting with candidates and talk with them.

3. Fail to become informed as to the limitations state and federal law impose on the purpose or recipients of your gift.

Consequences: You may be putting the institution in an uncomfortable position of rejecting the gift or taking it and then breaking the law. For example, in California and many other states, a donor cannot make a donation based on race, ethnic origin, gender, religion, sexual orientation or political affiliation. A gift that is limited to “Women who are registered Democrats and majoring in theater arts” would be illegal.

4. Fail to engage with the university’s foundation or development staff to see the feasibility of the donation achieving your goal.

Consequences: As an example, if your desire is for a significant rehab of a building, but the amount of the donation is inadequate to cover it, then the school has a problem. It may have to wait for years until enough funds can be accumulated for that purpose to be realized.

By discussing your idea with the development staff, there will be a greater likelihood of something attainable within your budget.

5. Fail to be kept informed as how you donation is being used. Ignore gift stewardship.

Consequences: You will be left in the dark and not witness the impact you are having on students and the institution. More than that, as a university has an obligation of respecting a donor’s intent, are they using these funds how you want them to be applied?

Ask for a yearly update on how your funds are being spent. Most schools have some kind of a reception or engagement with faculty, administration and students throughout the year. Be sure you are on their invitation list.

6. If you discover a potential misuse of your funds, remain silent.

Consequences: You will be seen as condoning the activity and possible misuse of your donation. When it comes to money – your money – silence is not golden.

Niemeyer concluded our chat with praise for all those who help support higher education:

“The impact of personal and corporate donations make it possible for one out of four students to attend university.

“One of the greatest ways you can thank your alma mater is by making a donation. Your gift has a priceless impact on the future of those students whose lives you touch, while benefiting our communities and country.”

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

H. Dennis Beaver, Esq.
H. Dennis Beaver, Esq.
Attorney at Law, Author of You and the Law

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."

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