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Are you a crowdfunder? You are if you have donated to a GoFundMe account, placed money in the church offering plate, or pooled money for a co-employee’s baby shower gift.

The person on the other side of the crowdfunding table is the campaign owner. That is the person who is in charge of the fund-raising campaign. Some campaign owners are blatantly raising money for themselves (“I need money to buy a prom dress”), while others advertise that they are doing it to benefit others (“I am raising money to give to the family of a deceased fireman”).   

There are a lot of dangers associated with crowdfunding. For example, if you donate money to that campaign, how do you know that your donation was given to that family? How do you even know that family exists? The short answer is that you don’t. 

You are relying upon the campaign owner to use the funds as advertised. You lose control over your funds after they have been donated. You have no right to request an accounting or a verification that the funds have been used properly.  

Crowdfunding Concerns

Who owns the money that is raised in a crowdfunding campaign? That depends on how the account was set up. The campaign owner could choose to have the funds deposited into her personal account, or he could have the funds deposited directly into an account owned by the “beneficiary.” If the funds are deposited into the campaign owner’s account, can the advertised beneficiary force the distribution of the funds? Probably not. What happens to those funds if the campaign owner dies, files for bankruptcy or goes through a divorce? They are likely gone.    

For that matter, if the beneficiary receives the funds directly, then how do you know how the funds were spent? Are the funds considered income to the beneficiary, or are they a gift? Could the funds inadvertently disqualify the beneficiary from receiving government benefits like Medicaid? There are all sorts of unintended consequences for a beneficiary.

The middleman, the crowdfunding platform, is another interesting component. With over 1,400 crowdfunding companies, the platforms are plentiful, but they are not free. For example, GoFundMe  charges 2.9% plus $0.30 for each donation. Some platforms charge as much as 12%. Of the companies in the United States, less than 1% are nonprofit companies. Crowdfunding is a huge moneymaker for the platforms.

Crowdfunding Alternatives

Rather than the free-for-all of generic crowdfunding, there is an alternative that would provide more certainty that the funds would end up being used for the beneficiary: a memorial trust. This gives the intended beneficiary the right to demand use of the funds and also ensures that the use matches up with your donative intent. A memorial trust can have a lot of drafting flexibility. It can be tailored to a specific situation, such as providing for the health, education, maintenance, and support of the beneficiaries.  

The trust could be created by a close friend or family member. Crowdfunding could still be used, but the monies would go directly to a bank account owned by the trust. The trustee would have a fiduciary duty to the beneficiaries. The trust could contain special needs language that would not disqualify the beneficiary from any needs-based public funding.

It would even be possible to arrange that any unused funds would be donated to a charity that would benefit other people who found themselves in a similar situation. 

If you want to donate money, then do so thoughtfully and carefully.

Hammerle Finley Can Help You Understand Your Options

Are you looking for legal assistance? Schedule a consultation with one of the experienced attorneys at Hammerle Finley to discuss your options.

Virginia Hammerle is in her fourth decade of practicing law. She is Board Certified in Civil Trial by the Texas Board of Legal Specialization and an Accredited Estate Planner. Contact her at legaltalktexas@hammerle.com or visit www.hammerle.com. This column does not constitute legal advice.