Major endowment donors and their families are increasingly concerned about what happens to charitable gifts when nonprofit institutions close.
In 2025, 15,000 churches and sixteen colleges closed in the United States. Many fraternal and social organizations have continued a decades long decline, with clubs, lodges, and chapters consolidating or disappearing. Many arts organizations, including small museums, have also closed.
Some projections suggest these trends may continue due to demographic, social, and economic factors.
As institutions disappear, donors and their families are beginning to ask important questions:
The answers are not always straightforward.
The Uniform Prudent Management of Institutional Funds Act (UPMIFA) requires nonprofit institutions to consider donor intent when managing endowment funds. At the same time, the law allows modifications if the original purpose of a gift becomes “impractical.”
Nonprofits must act prudently in managing endowments, but explicit donor restrictions remain binding unless the donor or a court releases them.
When a gift’s original purpose becomes impossible, unlawful, or impractical, courts may apply the cy pres doctrine, meaning “as near as possible.” Under this doctrine, funds may be redirected to a charitable use that is similar to the donor’s intent.
Courts typically first determine whether the donor expressed specific intent. If that intent is unclear, judges may modify the terms of a gift to reflect what they believe were the donor’s broader goals. Courts have historically been granted significant leeway in making these determinations.
When a nonprofit dissolves, U.S. law requires the organization to settle outstanding debts using operating funds before distributing remaining assets.
Any remaining assets must then be distributed to other tax-exempt organizations with similar missions, consistent with the cy pres doctrine.
Endowment funds are typically governed by donor agreements, which sometimes include “gift over” provisions directing where funds should go if the organization ceases to operate.
Importantly, in bankruptcy or voluntary closure, endowments are generally not considered creditor assets.
The redistribution of these funds is usually subject to oversight by:
If no gift over provision exists in the original agreement, the court decides which nonprofit organizations should receive the funds.
In the case of many churches, property may also be governed by denominational trust clauses. These clauses often transfer property and assets, after debts are paid to a higher denominational body such as a diocese or conference.
For donors and their heirs, these outcomes can be frustrating. Many feel their intentions have not been honored. In many cases, donors or donor descendants may not even have legal standing to challenge decisions because they no longer have an interest in the funds.
A recent example illustrates how complicated these situations can become.
In September 2024, the University of the Arts (UArts) in Philadelphia filed for Chapter 7 Bankruptcy. The institution’s assets and liabilities are believed to be equal and exceed $50 million. Significant real estate holdings in the city are expected to be sold to repay certain municipal bondholders who have liens on the property.
The university and its board are now subject to multiple lawsuits. Former employees, students, and the Pennsylvania Attorney General have raised allegations that include fraud. Some students have even filed lawsuits seeking to recover artwork left behind in studios when the campus closed with little warning.
At the center of the controversy is the university’s approximately $63 million endowment fund.
Half of that amount was contributed by Dorrance “Dodo” Hill Hamilton, heir to the Campbell Soup fortune. She also established the Dorrance H. Hamilton Endowment Fund at the university, which is estimated at $25 million and was designed to distribute 5 percent annually to bolster the operating budget of the university.
In Pennsylvania, charitable asset redistribution is overseen by the Orphans’ Court and the State Attorney General.
Two potential proposals for the endowment funds have emerged:
The Hamilton Trust has filed suit, asking that the funds their family contributed be transferred instead to a family foundation that supports education.
Their argument centers on donor intent. Hamilton’s gift was to support a small private arts institution, not a large public university.
Meanwhile, creditors have also attempted various legal strategies to attach the endowment funds as they provided support for operations.
The final resolution of the UArts bankruptcy and the litigation surrounding its endowment is likely to take years, with a sizable portion of the funds ending up in legal costs along the way.
Given the increasing number of nonprofit closures, donors may wish to take steps to protect their intentions.
Any charitable bequest in a will should designate a successor nonprofit if the original organization no longer exists.
For example:
“I bequeath one half of my estate to Mendicants Hospital of Pepper Pike, Ohio. If Mendicants Hospital no longer exists at the time of my death, this bequest shall instead be paid to the American Red Cross.”
This simple step prevents courts from having to determine how to allocate a gift intended for an organization that no longer exists.
Large gifts intended to establish or support an endowment should be governed by a formal written gift agreement.
Such agreements should include:
A reversionary clause gives donors or their heirs legal standing if court action becomes necessary.
In some situations, establishing a Donor Advised Fund (DAF) may offer advantages compared with funding an institutional endowment.
Potential benefits include:
As nonprofit closures become more common, questions around donor intent are likely to surface more frequently.
Careful planning and clear documentation can help ensure that charitable gifts continue the donor’s intent to support the causes that donors care about, even if the institutions themselves change.
For informational and educational purposes only. The information is not intended to provide specific advice or recommendations, and the information has been obtained from sources believed to be reliable.
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