The now troubled hospital had received an endowment during the 1990s from a long-term board member for $135 million. In the manner of other wills and endowments such as those made in Massachusetts and elsewhere, it was stipulated that the funds be held in perpetuity. Unfortunately, the hospital is currently losing $15 million daily and the endowment originally intended to be held in perpetuity is now gone.
The endowment money was used by the hospital mainly to guarantee capital expansion loans and as payment for malpractice settlements. How were the provisions of the original charitable endowment gotten around? The switching over of the original ‘in perpetuity’ endowment funds to cover immediate-use needs was done legally — and on several occasions — with the full approval of the courts.
The approval of the court was secured on the basis of its accepted argument that the donor intended that the institution remain in operation. To avoid a shutdown, the courts ruled that the endowment principal was needed to keep the hospital open. As of July, however, there were only 18 patients remaining in the hospital — with efforts in progress to transfer them out — and the troubled institution has been accepting voluntary resignations from physicians and administrators.
If the case of this hospital were to be used as a precedent, would others planning to leave charitable endowments in their wills be able to count on their in-perpetuity bequests being used in the manner intended and not converted to immediate use? Can the administrators of the institution to which the endowment is made be counted on to not bring about a financial crisis through either an excessive commitment to expansion or a lack of due diligence? Whether the endowment is to be made in Massachusetts or elsewhere, these concerns can be best addressed by thinking ahead and teaming up with those who have a firm grasp of the laws and safeguards that can help ensure that one’s wishes are carried out as intended.
Source: nonprofitquarterly.org, “”In Perpetuity” — Use or Misuse of an Endowment in the Face of Institutional Failure,” Michael Wyland, July 31, 2013