In this episode, Jason Kohout, chair of Foley’s Family Office’s Practice Group, and Tax, Benefits & Estate Planning associate Emmaline Jurgena, are joined by Kevin Melvin, legal counsel of Mayo Clinic’s Office of Gift Planning. This episode dives into what you could expect to see as you navigate health care philanthropy, with respect to restrictions, naming gifts, and other concerns.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Jason Kohout

Hello everyone, this is Jason Kohout. I’m an Estate and, Tax, Trust partner in the Foley & Lardner Milwaukee office. I’m here with my colleague, Emmaline Jurgena and Kevin Melvin at Mayo Clinic. I’ll let them introduce themselves before we get to today’s topic.

Kevin Melvin

Hi, everyone. This is Kevin Melvin. I work in the Office of Gift Planning at Mayo Clinic, and I have the privilege to work with benefactors that want to support Mayo Clinic’s mission and patient care research and education.

Emmaline Jurgena

And I’m Emmaline Jurgena. I am in the Estates and Trusts planning department at Foley & Lardner in the Milwaukee office. And I also work with charitable organizations like Mayo Clinic and also charitable donors to make the kind of gifts that we’ll be talking about today.

Today we’re talking about things that come up when we’re navigating health care philanthropy, specifically restrictions, naming gifts and other things like that. So, Kevin and Jason, I thought we would just get right into it.

When you’re working with donors to either develop the terms of their gifts to charity on your end, Jason, or when Mayo Clinic is working to take in a gift, what kind of restrictions are you seeing? Are they restrictions on purpose or do donors sometimes not have restrictions? And how do you deal with that?

Jason Kohout

Kevin, what do you see?

Kevin Melvin

Well, thank you for the question, Emmaline and Jason. We see it all over the board. Of course, we want to make sure that we can use the gift. So, we’re learning from the benefactor. We’re learning about their passions and how they want to support Mayo Clinic’s mission. And usually, they have some kind of idea, some affinity towards a particular disease area or an activity at Mayo Clinic that they’re interested in. And we want to try to align with that passion and help make their philanthropy become a reality at Mayo Clinic.

If it’s a gift that’s going to be in perpetuity through an endowment, then we want to make sure that the restriction is something that can be used 10, 20, 25 50 years, 100 years from now. So, we want to make sure that some flexibility. And usually, benefactors understand that if you’re talking long-term, that the gift restriction should really be high level and flexible. But there are times where a benefactor might be really quite passionate about a certain disease area and they want to see a certain outcome, and we basically try to listen to their goals and their objectives and try to figure out a way we can mutually benefit each other’s activities and goals.

Jason Kohout

As a planner, it’s really interesting. Our experience runs the gamut. I will have clients who sign $50 million gift agreements and I’ll read about it in the newspaper. They have not restricted any of it. Or if they’ve restricted it, they have not talked to their attorney. And then we have clients who are homed in on a particular vision for what they want for their gift. And it’s three or four pages of very specific, “This is what I want you to do with the gift” and we have so very tight purpose restrictions and how you’re going to do it and that sort of thing.

I would say we are increasingly working with our private clients on things like endowments. There’s very much a concept of permanence of, “I want this to outlive me. I want this to be my legacy.” So that would be funds that will be around, hopefully in perpetuity, to fund a chair of a department or some ongoing research or fellowship.

I would say in addition, we’ve had an uptick in building like capital expenditure and then recognition grant. So, saying things like, “I’ll make a gift for the building, but I want it to have my name on it.” That’s something that’s fairly attractive. And I think it looks like in philanthropy there’s really can be a focus on recognition, making sure that someone’s name on the building or whatever the naming opportunity is.

Kevin Melvin

Right. So, recognition is important to benefactors, and they want to understand and have clarity about what that recognition might look like, but they’re also guided by the impact that they want to have and what activities will be in that building or that capital projects. So, I think perpetuity is a long time. When we talk about gifts to charity, we want to make sure that medicine or whatever the charity activity might be, that there’s some opportunity to pivot as times change. Medicine is changing rapidly today, and so we want to make sure that if we’re going to have some funds, that there is some flexibility to be able to meet the current times and really ensure that these funds are spent and not being idle in a way that is not achieving the benefactor’s goal or the charity’s goal. So, it’s really a deep and rich conversation when those things come up.

Emmaline Jurgena

Yeah. So, what I’m hearing from both of you is that honoring the donor’s purpose, but also allowing for changes and/or modifications if the circumstances arise, where those are needed is important. Related to that, I was hoping you could talk about if you don’t have something in the gift agreement or if you haven’t worked out something with the donor, or maybe you’re dealing with an older gift that was taken in before you developed some of your modification policies, what other options do you have to modify a gift if it’s needed to serve the purpose of the donor or to adapt with the times?

Jason Kohout

Emmaline, you make a good point there. So, in modern gift agreements, I would say there’s very much a push by charities to I’d say put language into the gift agreement or the policy that governs that gift to be flexible to say something like, “Hey, the future may change. We may solve polio. How are we going to go forward?” Sometimes donors really… Clients, private clients and donors, can I think sometimes have a bad reaction to that language. But I have to tell you, as a person who advises individuals, I usually tell people like, “You should be trusting the organization that you’re giving these funds to. If you’re not, these restrictions are not going to be worth it. You need to have faith in the organization that you’re making a gift to.” Sometimes there’s some education about that and some thinking about that. So, we have our clients think a little bit about that. And oftentimes they come to the conclusion, “You’re right. We need to have some flexibility here because medicine especially does change.”

Kevin Melvin

Yeah. Jason, I would agree with that, but also I think it’s important to remember that even the modern gift agreement probably addresses these issues really early on in the conversation so people can get on the same page, but it’s really the older gift arrangements that have come in that we tend to struggle with about how to make sure that that gift is still impactful and meaningful and really helping the constituents of that charity.

And so, one thing that we should always remember no matter what is to always honor our commitments and honor whatever commitments were made at that time. And if something is happening in the future or in the present time where that’s being frustrated, then seek out a conversation if the benefactor is still available or maybe the foundation is still available to have that conversation and ask for a modification of use. And then if there isn’t anybody around, maybe it’s been 30, 35 years and there’s just nobody left to have that conversation with to make a modification to the gift agreement, then there are some legal mechanisms you can attempt to have a court maybe lift or modify or pivot the restriction a little bit and keeping the spirit of the original intent in mind as well.

Jason Kohout

Kevin, when you’ve had to go to court, has it been easy? Hard? So, what Kevin’s referring to everyone is that when there is a restriction or organization comes to the conclusion that the purpose is impossible or impractical, sometimes you go to court to lift the restriction. Ultimately, the court has the ability to do that usually with notice to the attorney general. So, you’ve got 2/3 parties. When you’ve had to do that in general, what’s your approach there and what’s your experience?

Kevin Melvin

It’s not easy. It is also very, I don’t know if sacred is the right word, but you want to be very careful and keep in mind that you made a commitment to the benefactor, you want to honor that as much as possible. So, you develop a petition for the court and then you seek a notice to the attorney general. Sometimes the attorney general might have some feedback or some questions about the arrangement. And then it’s heard by the court and the judge may have some additional questions as well. It is never completely lifting the original restriction. It is just modifying it enough to make the funds spendable to make sure that we can still use the funds. So, it is as close as possible to the original intent of the benefactor. I’ve never seen it in a situation where the court has lifted the restriction completely. It’s just enough of a modification to carry on the original intent of the benefactor.

Emmaline Jurgena

I wanted to note too is the reason that you worry about the original intent and the benefactor and that you have these gift agreements and documentation is because there is a mechanism in the law for these agreements to be enforced. And either that’s outlined in the gift agreement. I assume you see that sometimes, Kevin. Like you said, maybe you go back to the original donor or their foundation. And if it’s not, then it’s going to be enforced by the attorney general who has the power to enforce these charitable gift agreements.

Kevin Melvin

Yeah. Yes, that’s right. The attorney general is an interested party, and so they will look at the original gift agreement and all the facts and circumstances surrounding that. But sometimes you will see, you alluded to this, you will see that benefactors will nominate or put a term in the gift agreement that will provide that their foundation or maybe it’s next of kin will have standing to be able to have input and participate at a court hearing if it becomes necessary.

Emmaline Jurgena

Right. And that brings me to my other question. I’m sure you have donors that don’t necessarily need to enforce the gift agreement or have an issue with how it’s being used, but they do want to have an ongoing relationship with the gift or the program that they’re funding or ongoing input on the administration of the gift. Do you see that and how do you deal with that?

Kevin Melvin

Sure. In modern times, you are seeing more engagement from benefactors. They want to be part of the solution finding. They want to be engaged, they want to understand how the funds are being spent, and they want to receive not only annual reports, but maybe quarterly reports.

Sometimes they will set up, depending on the type of charity that we’re working with or that you’re working with, if it’s a scientific charity, a medical organization, there might be an independent scientific board that will review the outcomes of what this gift is supposed to be accomplishing. And sometimes this board might be made up of internal people to the charity and also external people selected by the benefactor that have a scientific background.

So, you’ll see that kind of, I don’t know if it’s checks and balances, but more of making sure that the funds are being maximized to the full potential and obtaining the results that are intended by the benefactor to really push, in our case, medicine forward. And what does that mean? That means treating patients better or finding cures to save lives for our patients. So, it’s really passionate work that our benefactors feel strongly about, and they want to make sure that we’re doing everything we can with the funds that they provided to push medicine forward.

Emmaline Jurgena

So, we’ve been talking about gift agreements and restrictions and enforcing those. On the flip side, I am sure you both maybe have people come to you and say, “We do trust this charity and a gift agreement just seems too formal. We don’t need one. We’ll just have some emails and maybe some verbal conversations.” How do you deal with that? Do you tend to steer donors away from doing that? I would think probably so.

Kevin Melvin

I can comment a little bit on that, and I’m sure Jason might have some further thoughts on it. There was a time where gift agreements weren’t used broadly across the industry and that the thought was that perhaps that would be off-putting to the benefactor, too legalistic. Why put a document in front of them that has a lot of legal terms in it, and it would just kind of silence the philanthropic conversation. And that just the opposite really has occurred.

You’ll find that gift agreements are used by many charities. Sometimes charities will have a threshold, so maybe they won’t use a gift agreement unless it’s $25,000 or more or depending on the scope and size of the charity. Some charities require a gift agreement in all scenarios. And what it does is it clarifies, oftentimes there are conversations back and forth and excitement and people get excited about what the funds could be used for, but we really want to make sure there’s a meeting of the minds and the understanding about how the funds will be used. And so, you have that situation going on.

And then there are other situations where benefactors, they don’t want to sign a gift agreement, they’re just not… A handshake is good enough for them, but emails, correspondence back and forth, all taken together could form a gift agreement under UPMIFA (Uniform Prudent Management of Institutional Funds Act).

Jason Kohout

You know, there’s a saying that-

Emmaline Jurgena

Yeah, that’s a good point.

Jason Kohout

… your time travel isn’t possible. But everybody on this call gets to hop in our time machine and go back to 1992 when there’s a gift, there’s a fund, and nobody signed up the gift agreement. And so, we’re struggling to put pieces together about email, letter, handwritten notes. I think we’ve looked at those. What was this fund about? What was this person… What did we say that a hospital would do? What would this donor want? And it comes down to trying to do the best job you can, but it wasn’t done with the gift agreement, a clear documentation or thinking about these poor people in 2024 that are going to have to figure out what to do with this money.

And so, I mean, I could see biggest reason to do a gift agreement is to very clearly and succinctly say, “What are these funds for? What are they to do?” If I was talking to a charity, I would absolutely talk about the default rules are not great because the default rule is you’re stuck with this purpose, and you might be stuck with some rules about how these funds are used that you don’t want to live with. Many times, the gift agreement, even a very short one, would say something to the effect of, “If these funds are impractical because we cure polo, you can use them for something that’s as close as possible in the discretion of the board of directors.”

That means that you don’t have to go to court, which is, as I think Kevin alluded to, it’s not something that anybody roose doing. I mean, it’s usually at least a six-month process. You get to show up, notice all kinds of things in which we usually try to avoid, and it can go awry pretty easily. So anyway, I mean, kind of the selling point for the gift agreement is that it does usually, the default language in a gift agreement, usually gives you some pretty good flexibility and also avoids this problem of, “Wow, we’ve got this fund here, but we don’t know what it was actually for, what the rules were, or better yet, what was the recognition that we owe this donor, but what exactly did we agree to?”

Kevin Melvin

Mm-hmm. That’s a really good point. And I just want to underscore that language that you’ll find in the typical gift agreement says something to the effect the donor, “If the use has become impossible and practical and not in the best interest of the charity, the board may modify it in a way that the board determines as reasonable and as close as possible to the original intent.” So, it is not a blank check and it’s not something that can be easily done. You have to take it to the board of trustees and there’s a number of people looking at it. So, it’s not something that accounting office can do, or the fundraising shop can do. It really defines a process that has to take place, and it is not a blank check.

So, a lot of times, benefactors will misinterpret that language or even current staff of a charitable organization. And what I want to just clarify is it is a process and it’s not a blank check. And that with these kinds of checks and balances in place, hopefully we ended up in a place of really honoring the benefactor’s intent and ascertaining their intent as well if there’s not a gift agreement in place.

Emmaline Jurgena

So, I’d like to pivot a little bit. We have talked about these restrictions and gift agreements, and they could apply to many charities, but one thing that’s interesting about hospitals is they go through these M&A transactions, and they merge with each other, and they expand, and they change. There are sometimes in the news or in case law, some issues with these restricted gifts that hospitals take in when they go through these M&A transactions. So, could you speak to some of the issues or risks or just things to be aware of there?

Jason Kohout

Yeah, I mean, every time that we’re engaged with a client that there’s going to be some sort of change of control transaction with a hospital that has been doing fundraising, there’s a question. And oftentimes it’s like a community hospital that’s going to become affiliated with a larger system. Some of that type of activity or some hospitals are going to move from one system to the other, that sort of thing. You do, just like any other contract, you would look at funds, any restricted funds to see, “Are these funds, are they able to be moved or is there some sort of issue that this restriction applies and it’s now going to become impossible to carry out that restriction?” And if that’s the case, then the funds or something has to be done, right? We have to take a look and say, “Wait a minute. If that MRI machine was bought with these funds with a certain restriction on it, can that MRI machine transfer?” Or if there’s a fund that’s been set aside for X and that purpose is not going to be met after the transaction, those funds may have to be sent elsewhere.

Kevin Melvin

Yeah. And I don’t know if I have much more to add to that except just understand what obligations and responsibilities you have signed up to do. An inventory of those gift agreements and the commitments that you’ve made will be important in that transaction so that you have that all up front and you can address it on the front end before the transaction is finalized.

Jason Kohout

Yeah, transactions in which then there’s somebody after the fact has to go through and do the cleanup, do these trust transfer over, do these restricted gifts transfer over or what’s going on here. But certainly, better documentation helps quite a bit.

One thing, Emmaline, that we’ve kind of come into or had a question about I’d say repeatedly is let’s say there’s been… I mean there’s been significant fundraising at an organization, but they typically have not used gift agreements. They’ve probably been doing a lot of general fundraising, I would say, but they’d done it in a community or a metropolitan area. And now they’re going to affiliate with a larger organization or just an organization in which the service area will be larger. I mean, there’s been some questions about essentially, “Well, did you have some sort of implied gift agreement that you raise these funds in Milwaukee and now you’re affiliated with this organization that goes across the Midwest, for example, are those funds limited to Milwaukee or can they be used in the entire new operating area or what?”

And so, there’s not really a gift agreement. And you could put yourself in the shoes of those donors. It’s not entirely clear what they would’ve said, right? They gave money to the hospital organization and it’s merging with another or merging into an affiliated organization.

It seems to me, and I think we’ve looked for authority on this, that that doesn’t trigger much of a restriction. Just the concept that, “Yeah, well, when we raised the money, we were this small type of organization. Now we might be a part of a bigger organization.” I think we’ve come to the conclusion that that’s not really much of a restriction. And there’s not a whole lot of authority out there on it.

Typically, you might go to the attorney general when you have a transaction like that and get the entire thing blessed. And as part of those conversations, you might sneak in this concept that, “Yeah, we’re affiliating and the fundraising and all the funds that are coming or that came with the prior organization can come forward. We don’t have to do any sort of cleanup or send the funds to another organization or something like that.” That’s a little, I would say, from what I can tell in the actual authority out there, our authority to say, that there’s very limited authority in that type of area. But on the other hand, that also means that we have not seen a whole bunch of people that we haven’t seen necessarily significant instances where that has become an issue.

Kevin Melvin

I was wondering that myself, Jason, is because the solicitation that was used for those collections of those donations probably doesn’t exist if it’s been a long time or the charity can’t find it, but they have some kind of accounting record that the gift came in, it’s supposed to be used for X. I’m wondering, is this a lesser issue too if the funds have been spent down and they’re not, for example, in a perpetual endowment?

Jason Kohout

Right. Hopefully they solved it the old-fashioned way, they just spent it. It’s not there anymore. But here I’m thinking of, it’s kind of basically, “Look, this organization’s always operating in this geographic area. We fundraised for the general purposes of this organization, never really put a restriction on it, but of course the service area was X,” right? I mean, everybody knew the funds would be used in X when they made the gift. Does that mean that there’s an implied sort of restriction that occurs when the service area is now 10X, Right? It’s quite a bit bigger. And I think the answer there is that no.

Now, on the other hand, in hospital M&A, I think probably on another podcast they’ll be talking about how attorney generals have become much more involved in just general hospital affiliations for a whole host of different reasons. I’m not seeing this as the big avenue for them to do that, but I think that’s probably something to be wary about, which is, but that’s on another… That’s a different podcast.

Emmaline Jurgena

Yes. And I agree there’s not that much authority out there. I will say it seems to be a bit of a more difficult case if a hospital organization is leaving the community entirely or leaving the states, then an attorney general might be more liable to get involved and say, “Hey, your assets were contributed at least in part for staying in this community.” But for a lot of the hospital M&A transactions we see, they’re simply getting bigger, but they are staying in their service area in some part. So, it seems like that is okay based on the limited authority that we have.

I think we’re wrapping up here, so I just wanted to get your thoughts, Kevin, and you too, Jason. We talked about having flexibility built into the document and modification provisions. How else do you ease the way for donors and these restricted gifts and yourself as the charity? I’m thinking, do you have gifting policies or gift acceptance policies or other ways that you streamline the process and make sure that the donor’s needs are met and that you can make sure you suss out their purpose and restrictions?

Kevin Melvin

Yeah, it’s a good question. Of course, we have lots of policies and procedures and gifting policy and gift acceptance and things like that at Mayo Clinic. One of the best advice I could give any charity is that when somebody’s thinking about making a donation, whether it’s small, big, medium, there’s a lot of excitement. And people at the charity are excited about it, the donor’s excited about it, but you really have to work hard in making sure that everybody’s on the same page. So, you have the fundraising department and the donor that is excited about the gift, and then you have to bring in other people.

So, in our situation, maybe it’s a gift that’s going to impact the Cardiovascular Department or the Cancer Research Department. We want to make sure the people responsible for spending that money understands the intentions behind the gift and are participating from almost the very beginning to make sure that there’s a meeting of the minds.

And one way you can help ensure that there’s clarity before the gift is accepted is to route an internal MOU, kind of summarizing the conversations and getting agreement from the stakeholders about how the gift will be used in their respective departments. Because if they’re not on board with it, that money may not be spent. It may just sit there for a while until somebody figures out a different kind of approach or how to discuss it with the department or the benefactor. So, I find that using an internal MOU, a memorandum of understanding with the charity stakeholders will help improve that understanding about how the gift will be used. And then from there, you would use that to draft the gift agreement to give back to the benefactor for their review with their counsel.

Jason Kohout

I think less so for bigger organizations, but smaller organizations going to fundraising for the first time. If you’re going to put limitations on certain things, like for example, you’re allowed to… We’ll recognize you for giving a gift to this building for 20 years. If you’re going to do that type of thing, which I highly recommend that you do, do it in a policy so that the first time someone asks, you can say, “Nope, it’s that way for everybody. It’s our policy.” I think it’s a lot easier to say no or to put limits on things when there’s a policy that’s been established. I think just clients and donors, they just tend to go along when there’s not a rejection of something they asked for. It’s just a statement of how we do things. I think that’s probably organizations getting into fundraising as opposed to the larger organizations probably have those policies in place. But as you begin to do that, you would think about that.

Kevin Melvin

I agree with that, Jason, because if you do have a policy in place, and for that policy to be there, there had to be some thought and consideration by various individuals. So, there’s probably a rationale behind it. So, you can cite the policy and then the why, the rationale behind the policy. And that will help keep the discussion with the donor on par and explain… It actually will enrich the relationship if you can kind of explain the rationale and the reason behind the particular policy too.

Emmaline Jurgena

Right. Well, thank you so much, Kevin and Jason. I think that’s all we have time for.

Jason Kohout

So, it’s my turn to say we’re going to send this back to Judy. Thanks, everybody. Kevin, thanks for joining us. And Emmaline, thanks for moderating. I’m going to turn this back to Judy now. Thanks everybody for joining.