Big Bequests: Burdens or Blessings?

The $1.5-billion gift to the Salvation Army made by the late Joan Kroc, widow of McDonald’s founder Ray Kroc, was just the most recent in a growing list of super gifts that have been made by wealthy philanthropists in the past few years. Instead of using their assets to endow grant-making or community foundations, these donors have decided to give large amounts directly to charities whose work they admired.

Yet, as the Salvation Army has candidly acknowledged, the pros-pect of so much money coming all at once poses risks as well as rewards, especially for a group known for its thriftiness and spirituality. Indeed, the Kroc bequest reportedly caused the organization to consult its lawyers for several weeks before accepting it. And if, as some have predicted, trillions of dollars in wealth are apt to turn into charitable donations in the next few decades, the Salvation Army will not be the last organization to have to face the challenge of what to do with massive gifts and bequests.

Especially after the slowdown in fund raising of the past few years, more than a few charities might be grateful to have such a problem. Super gifts, expected or otherwise, are to nonprofit groups what an infusion of new investment is to businesses. They enable growth, innovation, and more or better services. Managed wisely, they can stabilize an organization’s finances, creating a steady income stream in place of one dependent on short-term sources of support, such as grants, contracts, or fees. Not least important, the vote of confidence implicit in a substantial donation, and the resources it makes available, can be used to attract additional funds.

But receiving a large (and well-publicized) gift can also raise doubts about whether more support is still needed. National Public Radio, which received $200-million from Mrs. Kroc’s estate in November, has already sought to dispel any impression that its sometimes annoying pledge drives were history. Colleges and universities with multibillion-dollar endowments have grown accustomed to being asked why tuition continues to rise. In response, a few, such as Princeton University, have made commitments to use their sizable reserves to lessen the burden of rising educational costs on students.

Notwithstanding its reputation for frugality, the Salvation Army has been one of the nation’s most successful fund-raising organizations, amassing more than $1-billion in donations in 2002, mostly in small gifts. No doubt one of the reasons for the group’s delay in accepting Mrs. Kroc’s bequest was concern over its potential impact on the year-end bell-ringing drives that produce a large share of the Salvation Army’s income.

Adding to this problem is that big donations are rarely interchangeable with smaller ones. Mrs. Kroc’s bequest, for example, is limited to underwriting up to 30 community centers, modeled on one she helped create in San Diego, which features an aquatic center, ice arena, computer labs, and athletic fields, among other amenities. Yet, the Salvation Army already operates 9,000 centers, often in old buildings in run-down neighborhoods that could use a new coat of paint and much more. The $1.5-billion gift not only won’t help them, but because it covers only about half of the new centers’ annual upkeep, might even draw badly needed resources away from them.

Large gifts can also cause an organization to shift or lose sight of its priorities. After noting that none of the Kroc gift could be used in Britain, where the organization originated, one disgruntled Salvation Army officer wrote London’s The Guardian: “We don’t need $1.5-billion to make a difference in people’s lives; £9 helps provide a homeless person with shelter for the night…while £25 pays for one night’s meal run, which can provide up to 60 people with soup and sandwiches.” Yet, by accepting Mrs. Kroc’s bequest, the group committed itself to a program that seems quite different from its traditional way of operating — and maybe not as effective.

If gifts like Joan Kroc’s are harbingers of what lies ahead for philanthropy, more charities will be wrestling with similar problems. But a few steps could be taken to alleviate them, while still enabling organizations to reap rewards from generous benefactors.

Eliminating the estate tax completely would be one place to start. Now scheduled to decline in stages until 2010, then return, Phoenix-like, the following year, the tax creates a financial incentive for wealthy people to give large bequests, rather than smaller amounts throughout their lifetimes, in order to reduce what their heirs owe the government. If it were abolished, donors might still make big bequests, but the chances increase that super gifts will be spread throughout their lifetimes and thus better correspond to the needs and programs of the organizations receiving them.

For that to occur, however, charities will need to work more closely with donors who have the potential to make such gifts. That is not always easy; wealthy donors are notably reluctant to let their intentions be known and may even relish in surprising recipients. Moreover, one of the strengths of American philanthropy is that it empowers donors to try to realize their own visions of what is important, which may not always correspond to what the charity they want to support thinks is worthwhile. That’s not a new tension, but if we are entering an era of super gifts, the stakes of resolving it satisfactorily will be higher than ever.

Finally, it would not be a bad idea if a charity occasionally said “no” to a donor. Some already have, but usually because they regard the source of the money as “tainted” (as, for example, when it came from tobacco companies). But even though a donor might be completely free from any kind of stigma, gifts that have the potential to overwhelm an organization can create problems as well. In such cases, as the Salvation Army might put it, resisting temptation is usually the right thing to do.

Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.