Charitable Contributions – Part 2

Church Law and Tax 1989-11-01 Recent Developments Charitable Contributions Richard R. Hammar, J.D., LL.M., CPA

Church Law and Tax 1989-11-01 Recent Developments

Charitable Contributions

Can a donor revoke a contribution to a church on the basis of “undue influence”? Yes, concluded a federal appeals court. An heiress to a large family fortune began attending a church in Massachusetts. Over the next few years, she became intimately involved with the church and many of its related ministries, and made three large contributions to the church. The first contribution (stock in the family business worth $1 million) was made because of her belief that the gift would “cure” the severe headaches experienced by the pastor’s wife. After making the gift, the pastor allegedly informed the donor that his wife had been “cured” when in fact she continued to suffer from migraine headaches. Because of this event, the donor came to believe that large gifts could “affect events on earth.” Later, when advised by church officials that a particular missionary was being kept a prisoner in Rumania and that “they’re probably pulling out his fingernails by now,” the donor informed the pastor that she intended to make a $5 million gift to the church to bring about the missionary’s release. In fact, church officials knew that the missionary had been released several days earlier, but this information was not disclosed to the donor. She was simply told that her gift had “worked a miracle.” The donor also made a $500,000 gift to the church in an attempt to resolve her marital difficulties. Eventually, the donor was taken by concerned family members to religious “deprogrammers” who persuaded her to terminate her association with the church. She then sued the church, demanding a return of her gifts on the ground that they had all been the product of “undue influence” and accordingly were void. The federal appeals court, applying Massachusetts law, observed that gifts to charity can be revoked on the basis of undue influence, and that undue influence involves three elements: (1) a person who is susceptible to being influenced, (2) deception or improper influence is exerted, and (3) submission to the “overmastering effect of such unlawful conduct.” The court stressed that “it generally takes less to establish undue influence when a confidential relation exists between the parties.” Such a confidential relationship, the court concluded, existed between the donor and the pastor. The court found the following factors to be relevant in determining whether undue influence occurred: (1) the donor’s age, and mental and physical health; (2) “disproportionate gifts made under unusual circumstances”; (3) inexperience with financial matters; (4) attempts by the recipient of the funds to “isolate the donor from her former friends and relatives”; (5) whether or not the donor acted with or without “independent and disinterested advice.” The court rejected the donor’s claim that the $1 million gift had been the result of undue influence, since general statements by the pastor and other church officials that large gifts would “do great works” were “too amorphous to show undue influence.” However, the court found that the $5 million and $500,000 gifts were the result of undue influence and ordered them cancelled. The court observed that all three elements of undue influence were present. First, the donor was susceptible to undue influence. Second, the pastor had knowingly deceived her into believing that the missionary was in great danger when he knew that the missionary had been released from Rumania several days earlier. Third, the donor clearly “submitted” to the pastor’s misrepresentation. The court also noted that had the donor had been told that her $1 million gift had not cured the headaches of the pastor’s wife, she “might not have made the second gift at all.” Further, the $5 million and $500,000 gifts were not based on any independent advice, and had been concealed from family members (because the donor had been advised by church officials that her family was “evil and was to be trusted”). Finally, the court rejected the church’s claim that the constitutional guaranty of religious freedom “shields the solicitation of funds by a religious organization from attack since the gifts are sacrosanct.” The court quoted with approval the United States Supreme Court’s admonition that “nothing we have said is intended even remotely to imply that under the cloak of religion persons may, with impunity, commit frauds upon the public.” The court noted that the guaranty of religious freedom “does not allow purely secular statements of fact to be shielded from legal action merely because they are made by officials of a religious organization.” It concluded that “those who run [the church] may freely exercise their religion, but they cannot use the cloak of religion to exert undue influence of a non-religious nature with impunity. The $5 million gift and $500,000 gift might have had their seeds in the religious beliefs of [the church] but they were both nurtured and brought to fruition by misstatements and distortions of facts that had no basis either in the religious tenets of [the church] or [its] religious beliefs.” In re The Bible Speaks, 869 F.2d 628 (1st Cir. 1989).

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