By Debra E. Blum

A Texas court has ordered the National Heritage Foundation, a Virginia charity, to pay millions of dollars in damages to two donors who claimed to be misled by the organization.

The National Heritage Foundation, which was one of the leading promoters of a controversial giving technique that was effectively abolished by a 1999 law, must pay Juan J. and Silvia Mancillas, of Texas, and the couple’s two sons, a total of $6.5-million.

The Mancillas, who had given nearly $550,000 to the organization through the questionable giving scheme, alleged in a 2005 lawsuit that the charity failed to carry out the couple’s financial plans or charitable intent.

A 12-person jury issued a verdict last month, following a nine-day trial, siding with the plaintiffs and recommending that the charity pay the couple $9-million in damages.

Judge Abel C. Limas last week set the damages at $6.5-million, based in part on the cash value of life-insurance policies that were bought with the Mancillases’ contributions.

In an e-mail message, John T. Houk, president of the National Heritage Foundation, said that the organization “respectfully disagrees with the verdict and plans to appeal its findings.”

‘Split-Dollar Plan’

As it did with about 600 other donors in the 1990s, the National Heritage Foundation established a so-called charitable split-dollar plan with the Mancillases, according to the lawsuit.

Under the plan, donors would make tax-deductible donations to the National Heritage Foundation, which then used those donations to pay premiums on life-insurance policies. The beneficiaries of the policies were primarily the donors’ heirs, but a smaller portion of the death benefit would go to a charity chosen by the donors.

In 1997, the Mancillases bought three life-insurance policies with annual premiums totaling about $85,000. The beneficiaries were the couple’s two sons, and the Mancillas Family Foundation, which was housed at the National Heritage Foundation.

A lawyer for the Mancillases said the couple intended for the $2-million or so that would have gone to the family’s foundation at their death to benefit a local convent.

The Mancillas lawsuit, however, says that the National Heritage Foundation, without the couple’s knowledge, changed two of the policies, naming the foundation as the sole beneficiary, and allowed the third policy to lapse.

The lawsuit says that the foundation failed to alert the Mancillases — who continued to pay $85,000 a year to the foundation from 1997 to 2003 — that the split-dollar plans had been rendered illegal.

Critics of the plan said the split-dollar arrangements allowed donors to use tax-deductible dollars to generate a disproportionately high private benefit.

It wasn’t until July of this year that the National Heritage Foundation changed the beneficiary of the two remaining policies from itself to the convent chosen by the Mancillases, according to documents filed with the court.

A National Heritage Foundation statement, released after the jury verdict, says the Mancillases’ own advisers transferred ownership of the life-insurance policies to the foundation after the law changed, and that the foundation did ultimately change the beneficiary to the convent.

It says that “at all times, NHF’s primary focus and concern was for charity, and that all actions taken by NHF were for that very purpose.”

In an e-mail message, Mr. Houk, the organization’s president, said that all other split-dollar plans the charity had arranged before the law change have since been “resolved without issue.”

“This one,” he wrote, “involved a supposed breakdown in communication with all of their counselors, and we were sued.”