“Donor Intent Cannot Be Casually Discarded”: Ruling From Iowa and Its Implications For Higher-Ed Fundraisers

Fascinating case out of the Iowa Supreme Court: race-based scholarship allowed to stand, "donor intent cannot be casually discarded." 

The case, involving a scholarship founded in 1996 by alumnus Ezra Totton, made its way to the Hawkeye high court as the state's attorney general argued that it required amendment "because of a 2023 U.S. Supreme Court decision striking down Harvard University’s use of race in admissions decisions."

Totton, a Black alumnus, established a scholarship “for Black students majoring in the physical sciences, preferably chemistry." But the Iowa AG argued that compliance would be best met through making the scholarship "available to first-generation college students of any race or ethnicity who majored in the physical sciences, preferably chemistry." The court's ruling? 

"All members of the Iowa Supreme Court agreed the university may not unilaterally rewrite the terms of the Totton scholarship, even if its conditions are impracticable to administer now." 

As the Times-Republican writes, "The court did not declare a race-based scholarship is automatically lawful. It also did not rule that Iowa’s colleges and universities may ignore constitutional limits established by the U.S. Supreme Court. Instead, the Iowa court focused on a longstanding principle written into Iowa statutes and even the University of Iowa’s gift acceptance policy: When a donor makes a charitable gift, courts and universities should respect the person’s stated wishes unless a compelling legal reason prevents it." 

NOW. Here's where things might get interesting. Nowhere does the court ruling say that the University of Iowa must administer the scholarship. It just says that the University cannot rewrite the agreement as proposed. This isn’t semantics, folks. It’s the stranded-fund problem: when a fund cannot be awarded as written, and the institution also cannot change the criteria, the money does not magically become flexible. It sits unused, accumulating balances and not making an impact.

And if this case gathers the attention that lightning-rod issues like this tend to generate, I imagine we may be watching the setup for the next legal question: whether UPMIFA can be cited as the pathway to unlocking the expenditures from this fund. 

UPMIFA, or the Uniform Prudent Management of Institutional Funds Act, states in the prefatory note that “The inability of a charity to spend anything from an endowment is likely to be contrary to donor intent, which is to provide current benefits to the charity.”

So, follow my logic here: the University of Iowa says that, in compliance with current Department of Education guidelines, it may not award scholarships to students based on race. So, the University writes to its Attorney General for modification of the fund using a legal precedent called cy pres. The courts in the state of Iowa conflict, ultimately leading to the State Supreme Court ruling above. 

But DRG Senior Associate Liz Menne raises an important distinction in her review of the case: “It is interesting that the courts used ‘impracticable’ here rather than ‘illegal.’ That sends a message that while the Department of Education sent out guidance on race-based anything, this is not inherently illegal or a compelling legal reason not to award it.”

That distinction matters. The ruling itself states, “On appeal, we conclude that it is at least ‘impracticable’ to administer the scholarship as is. Iowa Code §540A.106(3). But we do not find support for the University’s proposed modification.”

In other words, this may not be a ruling that UPMIFA processes are unavailable or that modification is impossible. It may be a ruling that the proposed modification did not sufficiently preserve donor intent.

And that is where Liz’s second point becomes especially important: “It is also interesting that Iowa thought a scholarship for a particular race now equates to first-generation. I do think the choice of new criteria is also something to consider here in donor intent.”

The Iowa Supreme Court ruling says that it is honoring donor intent by not allowing the specific revision. UPMIFA, however, suggests that not spending anything from an endowment may also be contrary to donor intent.  

HMM!  

Full disclosure: I haven’t read the specific court ruling, and I am not an attorney, so I don’t know the legal precedents the Iowa AG cited in the case. But I truly believe there may be grounds here for a subsequent case involving a living donor whose scholarship terms or criteria have become legally difficult, impracticable, or impossible to administer as written, challenging an institution’s need to change the written criteria.

Mr. Totton has since passed away, and I would be cautious about assuming that his heirs could successfully claim standing or a legal right to challenge the administration of this particular fund. That may be one reason this case feels unresolved from a donor relations perspective: the court is trying to preserve donor intent without the donor present to clarify whether “as written” or “as spent” matters more.

That is where this gets especially interesting for fundraisers and donor relations professionals. We often talk about donor intent as if it is fixed forever in the words of the gift agreement. But what happens when the written terms and the charitable purpose start to pull in opposite directions? What happens when honoring the exact language means the fund cannot be used at all?

Ultimately, I think we have a true bellwether case for donor intent here: whether donor intent is best preserved by honoring terms exactly as originally written, or whether modification may sometimes be the better way to preserve the donor’s charitable purpose.

We’ll be following this case, and others like it, as higher education wrestles with this conflict.

Want to keep this conversation going?

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Written by Colton Withers

Colton Withers is a recovering major gift fundraiser who learned early that every gift agreement eventually becomes a donor relations responsibility. As a consultant and strategist, Colton helps nonprofits strengthen the systems, decisions, and donor experiences that turn charitable intent into lasting impact, especially when the fine print gets complicated.