One issue that occurs in estate planning is whether or not a charitable pledge can be enforced on a person’s estate after death. Wealthy individuals often make pledges to their favorite charitable organizations during their lifetime, only to die before fulfilling the pledge. Executors are then placed in the difficult situation of balancing its duty to ensure the estates assets for the decedents heirs and to pay the money owed by the estate to the charitable organization. If a court rules the pledge is enforceable, the pledge must be paid out of the estate before the rest of the estate’s assets are distributed to the beneficiaries.
Courts will often find a charitable pledge enforceable when these situations occur:
The pledge is an offer to contract that becomes binding when work obligated by the pledge has begun, or the charity relying on the pledge has otherwise incurred liability.
Donor’s pledge has induced other pledges
The charity’s acceptance of the pledge imparts a promise to apply the funds according to the donor’s wishes, and his pledge is supported by that promise.
Public policy requires the donor’s liability on a pledge.
State law defines when a charitable pledge is enforceable. In Florida, a pledge is enforceable only if there is evidence of contractual consideration or promissory estoppel. Consideration is the bargained for mutual exchange of binding legal detriment and benefit, where each of the parties extending something of value. Consideration is needed for most contracts to be binding. A good example of consideration is where one party pays money to another party to produce a good. One party is losing money to his or her detriment, while the other party is losing time and the raw value of the parts required to produce the good.
In Florida, promissory estoppel is required to enforce a charitable pledge when a contract is not present. Promissory estoppel is a doctrine that provides relief to a party that changes his or her position substantially by acting on reliance upon a gratuitous promise. Many states do not require detrimental reliance to be shown when the issue is a charitable pledge. The elements of promissory estoppel are:
- Promise: A promise was made.
- Detrimental reliance: the party relying on the promise to a detriment and is now worse off for relying on the promise.
- Foreseeability: the reliance was reasonable. If someone promises to pay for a new hospital building, it would be reasonable for the hospital to build the new building.
- Justice: public policy weighs in the favor of the pledge being enforced.
In Florida, the Supreme Court has made it difficult for charities to recover charitable pledges. For example, in Mt. Sinai Hospital v. Jordan, the pledge card read: “In consideration of and to induce the subscriptions of others, I promise to pay…”
The donor pledged to pay a total of $100,00, but only paid $20,000 during his lifetime. The charity sued the estate for the remaining $80,000. The charity did not claim promissory estoppel, and instead confidently claimed there was a breach of contract because the opposing party signed an agreement stating consideration was present. The court held the pledge was still not enforceable, and no consideration was present. Instead of being a binding contract with consideration, the court decided the pledge was simply a gratuitous promise to make a future gift. This case tells us that courts are more likely to side with the estate on this matter unless there is evidence of detrimental reliance, which even then may not make a pledge enforceable.
However, other states favor the charity when it comes to enforcing a charitable pledge. In Iowa, for instance, the two leading Supreme Court cases have held charitable pledges are binding and enforceable without any proof of consideration or reliance. The courts there have even gone so far as to enforce oral pledges.
New York is a state, like many others, that falls somewhere between the two extremes of Florida and Iowa. In a recent New York case, The Educational Institute Oholei Torah—Oholei Menachem asked the court to dismiss objections to its petition to determine the validity and enforceability of its $1.8 million claim against Isaac Kramer’s estate. The family and Public Administrator opposed the charity’s claim by asserting Kramer’s signature wasn’t genuine, the pledge was not duly executed, and the pledge failed for lack of consideration.
The case ultimately came down to the issue of reliance and the court found that the charity failed to satisfy its burden to demonstrate detrimental reliance on Kramer’s pledge. In the cases cited by the parties, courts have held that a pledge is enforceable when a charity has detrimentally relied upon a pledge. In Cohoes Memorial Hospital v. Mossey, 25 A.D.2d 476 (3d Dep’t 1966), a pledge in support of construction of a new hospital was enforceable because the hospital was actually built. In re Lord’s Will 175 Misc. 921, 927 (Sur. Ct. Kings County 1941), the decedent’s pledge in support of the college’s plans for a library was enforceable because the college had employed and paid architects for plans and construction was under way.
In many states, courts will often side with a charity when they have acted upon a charitable pledge. However, Florida is one of the few states that favor the estates over the charity in cases involving the enforceability of charitable pledges. Contact the Law Office Of David Goldman PLLC if your inheritance is at risk of being spent to pay a charitable pledge.