A restricted gift is a legal promise, and too many university foundations treat it like a suggestion once the original program runs into trouble.
When a donor funds a named professorship, a scholarship, or a building, the words in the gift agreement remain binding decades after the check clears. If a program closes or a campaign stalls, the foundation cannot quietly sweep the remainder into the operating budget. That tension is now producing donor intent lawsuits, state attorney general reviews, and sharper scrutiny of who inside universities actually owns restricted funds.
The stakes are not small. Philanthropic support to U.S. higher education reached $58 billion in fiscal 2023, according to the Council for Advancement and Support of Education, and a large share of that money arrived with donor-imposed conditions. Conditions create rights, and rights create litigation.
The legal pattern behind donor intent lawsuits
Princeton's seven-year dispute with the Robertson family remains the template. The family gave money in 1961 to support the Woodrow Wilson School. In 2002, descendants sued, alleging that Princeton used Robertson Foundation assets for unrelated administration. The case ended in a 2008 settlement that forced tighter accounting and returned a significant portion of the endowment to the family foundation.
Tulane encountered the same logic with an older gift. Josephine Louise Newcomb's 1886 bequest created H. Sophie Newcomb Memorial College. After Hurricane Katrina, Tulane's board dismantled the college as part of a campus-wide restructuring, and Newcomb's heirs sued over the terms of a gift that predated most of the university's buildings. Years of litigation ended with a settlement that preserved the college's identity through the Newcomb College Institute.
These cases are not relics. Every restricted fund that outlives its original purpose is a potential dispute, whether it arrives as a lawsuit, a demand letter from a donor family, or a state charity regulator asking why a scholarship fund has made no awards in six years.
In these cases, courts look less at the institution's good intentions and more at the paper trail: the original gift instrument, the donor's contemporaneous letters, board minutes approving the fund, and years of spending reports. A single sentence in a 1961 letter can become the central exhibit. The strongest university defense is not that the money was put to good use, but that the spending stayed within the scope of the original gift. Once a court sees the money moving into general operations, the narrative shifts.
What UPMIFA actually permits
Donor intent is not fundraising etiquette. Under state charitable trust law, a restricted gift creates a fiduciary duty. If the purpose becomes unlawful, impracticable, impossible, or wasteful, a court can apply cy pres, a legal doctrine that permits the fund to be redirected as near as possible to the original intent. The state attorney general typically sits in this conversation as the guardian of charitable assets, which is why universities negotiate with regulators before a donor's heirs reach the courthouse.
The Uniform Prudent Management of Institutional Funds Act, known as UPMIFA, gives boards more room on spending and investment, but it does not erase the restriction. Adopted in nearly every U.S. state, UPMIFA allows an institution to modify a small, old fund without a court order in limited circumstances, usually by showing the fund's age and size meet state thresholds and by giving notice to the attorney general. That statutory path has become a quiet home for dormant scholarship funds. It is not a release valve for a nine-figure endowment with a living donor and a law firm on retainer.
The Robertson settlement, reported by The New York Times, showed how much process a donor-intent case consumes even when both sides finally settle. Princeton did not simply write a check and move on; the university had to rebuild internal controls around an endowment that had been governed by assumptions for decades.
Release paths before a lawsuit
Most restricted funds never reach a courtroom because universities use release paths that do not require donor heirs to sue. If the donor is alive, a written amendment to the gift agreement is the cleanest fix. If the donor has died, a court may apply cy pres after notice to the state attorney general. Under UPMIFA, some small and old funds can be modified administratively, provided the university meets state-specified age and size thresholds and gives the required notice. A fourth route, donor-approved renegotiation during a campaign, often works because the family wants the legacy preserved, not litigated.
The $58 billion flow of philanthropic support catalogued by the CASE Voluntary Support of Education survey is heavily restricted. That means the release path matters before the dispute, not after.
Where foundations get into trouble
The most common failure is paper, not fraud. A gift agreement from 1987 says the earnings must support an annual lecture. The lecture ended in 2014. The foundation keeps distributing the income and records it as unrestricted. Fifteen years later, a new vice president discovers the balance and asks whether it can quietly fund student aid. That question is where liability begins.
A second failure is assumption. Boards assume that the death of the donor erases the restriction because the program no longer exists. It does not. The restriction stays attached to the fund until a donor, a court, or a statutory process releases it. The longer the institution waits, the more the bookkeeping looks like misuse rather than drift.
Donor intent cases also share a staffing problem. The gift officer who accepted a restrictive donation in good faith is usually long gone when the dispute begins. The document sits in a donor file, but no one has mapped it to the budget line. Institutional memory is not a control.
These governance failures are landing alongside other endowment and property-tax battles. Campuses already facing the U.S. endowment tax fight and property-tax exemption challenges are being forced to defend restricted funds with the same general counsel and the same finance staff. That concentration of risk is new, and it is expensive.
What advancement and legal leaders should do now
You solve donor intent problems in the gift agreement and the audit file, not in a press release.
- Build a restricted-fund ledger that records original purpose, current restriction status, spending history, and the responsible academic or administrative unit. A spreadsheet with no named owner is not a control.
- Before any consolidation of academic programs, have counsel run a restricted-fund impact review. Donor restrictions cannot be ignored because a dean wants to reallocate.
- Write successor-purpose language into new gift agreements. If the named program ends, who decides the redirected use, and what notice does the donor family get? That clause is cheaper than a 2046 lawsuit.
- Audit old and underspent funds against UPMIFA thresholds. The statutory modification process can clear dormant funds, but only with the required state notice.
The departments that hire for these roles also need the right people in place. A foundation controller or donor relations officer who understands restricted fund accounting is no longer a luxury hire.
The cost universities rarely budget for
Donor-intent litigation is a reputation event first and a legal event second. Robertson v. Princeton ran for six years. Tulane's dispute lasted several years. During that time, campaign staff answered one recurring alumni question: will my gift actually be used the way I directed? The answer matters more than the endowment return.
For deans and provosts, the hidden cost is frozen capacity. Money stuck in a disputed fund cannot support new faculty lines, graduate stipends, or emergency student aid. Many universities are already making hard choices about which positions to fill, a pressure documented in this site's coverage of faculty hiring freezes. A frozen restricted fund narrows those choices further. Institutions with clean gift records and successor terms can move money toward defensible new uses without waiting for a court order.
If you sit on a foundation board, ask one direct question before approving this year's budget: which restricted funds have not been spent for three years, and who is responsible for resolving them? That single question exposes most donor-intent risk before it becomes a lawsuit.
Photo by Igor Omilaev on Unsplash