By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney
A question was recently asked regarding the legal obligation, to make a promised gift to a charity. If a person agrees to donate money to a non-profit organization and then the person dies without leaving any specific bequest to that charity in the will; is the promise to make a gift in life binding on the estate of the decedent? In a case there was no written agreement between the donor and the charity. There were emails between the decedent and the non-profit organization about the decedent’s intention to make a donation but no detrimental reliance by the non-profit organization on that promise.
What is a Charitable Pledge? As a legal matter, a charitable pledge is a contract between a donor and a charity in which the donor promises to make a contribution in the future. Pledges may be oral or in writing. According to the financial Accounting Standards Board (FASB), charities are required to record enforceable pledges as assets when they are made, just like any other debt obligation. If a pledge is not fulfilled, the charity must write off the unpaid amount of the pledge.
When is a Pledge Legally Binding and Enforceable? Under traditional contract law principles, a charitable pledge is enforceable if it meets the requirements for a legally binding contract. There must be an agreement between the donor and the charity – in effect, the donor must promise to make a gift and the charity must promise to accept it. The terms of the agreement must be clear and all conditions specified. Some commentators believe there must be “consideration” given in exchange for the pledge, which essentially means that the charity must agree to do something (or not do something) in exchange for the promised lifetime donation. But is “consideration” still required to make a promise enforceable?
Courts will generally enforce a pledge if the charity has suffered some detriment by taking action in reasonable reliance of the pledge, even though such detriment was not requested as consideration. This legal principle is known as “promissory estoppel” or “detrimental reliance.” Actions that constitute detrimental reliance include soliciting other donors based on the pledge, incurring costs, entering into contracts, or borrowing money based on the expectation that the donor’s promise will be kept. The principle is currently the law in roughly 30 states.
There are certain defenses that can be raised to avoid enforcement of oral agreements, including if the agreement is not one that is capable of being performed within one year of the time of its making. This defense against enforcement is called a “statute of frauds” defense. However, a party may be barred from raising the statute of frauds as a defense if the charity has relied on the promise to its detriment or the donor has performed part of the agreement (i.e. made payments).
The short answer to the subject of this attitude, at least in New Jersey is that charitable pledges are enforceable, as a matter of public policy, even if unwritten, not backed by consideration, and the charity did not act in reliance. In Jewish Federation of Cent. New Jersey v. Barondess, 234 N.J. Super. 526 (Law Div. 1989), an individual made an oral promise to give $2,000 to a religious institution. The promise was not to be performed within a year and – at the time- such promises were barred by the [now repealed] Statute of Frauds. It also appears that the charity did not give consideration for the pledge, nor acted in reliance of the promised gift.
The court didn’t seem to care about the legal principles of either “consideration” or “detrimental reliance”. Rather, the court stated, “The real basis for enforcing a charitable subscription is one of public policy – that enforcement of a charitable subscription is a desirable social goal.” That being so, the court felt it to be illogical “to permit contractual defense to undermine that policy.” It enforced the pledge.
Then in More Game Birds in America, Inc. v. Boettger, 125 N.J.L. 97, 101 (E. & A. 1942), the court stated: “A careful study of the cited decisions and many others to like effect, together with opinions of text writers on the subject, impels the conclusion that “public policy” and “public benefits” form the basis upon which consideration can be found in order to impose liability on promised charitable donations.”
So, if you make a charitable pledge, you better be prepared to fund it…alive or dead.
To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.