“How are you at Carnegie Hall?” The young interpreter questions a New Yorker upon disembarking at Penn Station. The New Yorker responds, “Train, train, train. ”

Of course, that’s not how Andrew Carnegie got there. Philanthropy was his ticket; he paid for the construction of Carnegie Hall and much of its upkeep until his death in 1919, and because his name is on the building, he will be remembered long after most of the musicians who performed there had been forgotten. Others also had their names emblazoned on Carnegie Hall; most recently, Sanford Weill and the Weill Family Foundation surpassed the $ 100 million mark in combined contributions to Carnegie Hall. Thanks to this massive donation, much of which comes from the Weill Family Foundation, there is now a Joan and Sanford I. Weill Recital Hall, the Weill Music Institute, the Weill Terrace and the Weill Terrace Room.

How was Sanford Weill able to use his private foundation for this purpose without breaking IRS rules? The first rule of private foundation work that most donors and foundation directors learn is: “You will not personally benefit from your relationship with the foundation. “Due to the strict” self-employment “rules of Section 4941 of the Internal Revenue Code, almost any financial benefit to a donor or insider from the activities of a private foundation, whether that benefit is direct or indirect, forbidden.

So how come the Weill Family Foundation has apparently benefited Sanford Weill in a very significant way – cementing his legacy for many years to come – by giving grants to Carnegie Hall in return for these naming rights? And why do it through a private foundation, rather than through Sanford’s own resources?

A “simply incidental” advantage

While it is true that private foundations are generally not allowed to offer benefits to donors, tax rules primarily treat public recognition, including naming rights, as a “merely ancillary” benefit for charitable purposes served by the corporation. grant. It seems counterintuitive. Staples paid nearly $ 120 million in 1999 to have its name on the Los Angeles arena now known as Staples Center for a period of 20 years. The name became permanent in a 2009 agreement with undisclosed financial terms. Certainly, naming rights have real monetary value, and it certainly seems like a business transaction for a private foundation to pay for these naming rights for the benefit of an individual or a company affiliated with the foundation. However, perhaps due to the recognition of the importance of facilitating name giving for public charities which thus generate a lot of revenue, IRS rulings have generally blessed the use of foundations to grant grants. grants in exchange for naming rights.

This does not mean that there is no risk, and a lot can depend on how the distribution is framed. However, if done correctly through thoughtful negotiation and a carefully drafted gift agreement, using a private foundation to secure naming rights has long been successful and should not present any tax risks.

Advantage over individual gifts

Using a foundation to make such a donation may have certain advantages over an individual donation. Many donors use their foundations to ensure that there is a party to the naming rights agreement that will endure beyond the donor’s death. Heirs are usually denied the right to enforce naming rights agreements made by individuals. A private foundation, however, can last indefinitely, ensuring that there is a party to monitor the recipient’s compliance with the agreement. In addition, in the event of a violation, it is much easier to negotiate the repayment of funds when the donor is a private foundation than when the donor is an individual.

There may also be tax advantages to using a foundation. For example, if the recipient is not a US charity, the donor will almost certainly have an interest in using a foundation, as an individual generally cannot obtain a tax deduction for a donation to a non-US charity.

Appointed by a private foundation

Let’s say you are a donor who has a private foundation. Once you’ve decided to donate, you’ll need to negotiate a written agreement with the charity of your choice to secure the naming rights you want. The written gift agreement should include some or all of the following:

1. Parties to the agreement. This is usually the foundation providing the grant and the charity receiving it. There may be instances where the grant may go to an affiliate of the charity, such as a supporting organization, while the designation will be on a building directly owned by the charity.
2. Rising and the timing of the grant. Some grants will be paid in a lump sum at the time of signing the grant agreement. In other situations, grant payments may be more desirable and may be made conditional on certain milestones being followed to keep the recipient motivated and limit inconvenience to a donor if the project to which the naming rights will attach dies out. Vine. In addition, the agreement may provide that payments may come from other sources, including individual donations, grants of funds advised by donors, or gifts from other family members.
3. The name. You, of course, will want to specify how the name will be read. You don’t need to mention your foundation if you don’t want to; even if the funds come from a private foundation, it is acceptable to honor an individual’s name. With a corporate name or logo, the company will have to authorize their use.
4. How the name will be displayed. This can be very specific, such as requiring the name to appear in a particular place on a building in letters in a certain font and size. Attaching renderings to show what the name should look like can help avoid later conflicts.
5. What is the name attached to. Charities will want the flexibility to provide other naming opportunities in and around the building. The agreement should be clear on the extent to which these other opportunities will be offered, and in particular should ensure that no other naming opportunity is treated more significantly.
6. Destruction. What happens if the building or space that is named is destroyed and not rebuilt during the term of the naming right? Can the name be transferred to another building or space? Who must approve a transfer? Can this be done unilaterally by the charity, or does the original donor have to agree?
7. Advertising. Must all advertising for events in the building use the full name of the building? Should the name be used in the building’s official mailing address? Will the building be officially inaugurated with a ceremony which the person whose name it bears will have the right to speak or attend? To what extent will the foundation or others have the right to pre-approve promotional material bearing the name?
8. Deadlines and morality clauses. Increasingly, charities are looking to place time limits on naming rights and ensure they have an outlet if circumstances change – in particular, if the name on the building becomes a source of worry or embarrassment. These provisions are very sensitive and are carefully negotiated between the donor and / or foundation and the recipient charity. It is important in these negotiations to be sensitive not only to the wishes of the donor, but also to the needs of the charity to protect its reputation and its charitable mission. Compromises can include deadlines and objective standards for determining whether to withdraw naming rights.
9. Remedies for Breach of Agreement. In many jurisdictions, a donor may not apply the terms of a charitable donation unless the agreement expressly provides for it. Therefore, if you want to impose consequences for a breach, you must do so clearly in the agreement. Remedies may include reversion of funds; the “donation-more” provisions, whereby breach of the agreement results in the transfer of funds to another charity; or coordinated alternative solutions.

When all parties to a naming agreement respect each other’s needs and imperatives, appreciating both the donor and the charity’s mission, naming rights agreements can align the two sets of goals, providing much-needed resources to the charity and cementing the donor’s philanthropic legacy for years to come.

Foundation Source thanks Brad Bedingfield of Hemenway & Barnes, LLP for his assistance in preparing this article.

Jeffrey Haskell, JD, LL.M. is Chief Legal Officer and Jennifer E. Bruckman is Associate Legal Officer for Foundation Source, which provides comprehensive support services to private foundations. The firm works in partnership with financial and legal advisers as well as directly with individuals and families.

Foundation Source is the largest national provider of management solutions for private foundations. We empower people and businesses to create a better world through their philanthropy through a configurable suite of administrative, compliance and advisory services, complemented by specially designed foundation management technology and private foundation experts. We work with financial advisors, legal and accounting professionals, consultants and family offices, as well as directly with individuals, families and businesses to bring philanthropic visions to life. As we celebrate our 20th year of service, Foundation Source supports nearly 2,000 family, business and professional foundations of all sizes and has enabled more than $ 7 billion in charitable grants.

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