CHARITABLE TRUSTS Flashcards
Issues
Creation
Beneficiary
Rule Against Perpetuities
Cy Pres
Definition of a Charitable Trust
[A] Statute of Elizabeth:
Trusts for education, alleviation of poverty,
alleviation of sickness, to help orphans.
Definition of a Charitable Trust
Restatements:
Any trust which confers a substantial benefit upon
society.
How to create a charitable trust
It is created in the same way that a private express trust is
created: you need a
[i] manifestation of trust intent, which can be done
[ii] at testator’s death by will or
[iii] during settlor’s lifetime by declaration of trust or by transfer in trust
[iv] of a presently existing interest in property that can be transferred
[v] for a legal chartiable purpose.
Identification of the beneficiary
In a charitable trust, there is no ascertainable person or group of people who are the beneficiaries, as in a private express trust.
Why?
Because society is the beneficiary of a charitable trust
Note that while an individual may receive an incidental benefit, the focus is on society.
[a] Example: A trust is established to endow a chair at a
university.
Where the beneficiary is of a small group of people, is this a charitable trust, or a private express trust?
Answer: a split of authority.
[a] One view: it is a private express trust because:
- Only a few people are getting a benefit
[b] Other view: it is a charitable trust because:
- Whenever poverty is eliminated, society benefits
Why care if the trust is a private express trust or a charitable trust?
Because of the Rule Against Perpetuities and Cy Pres
RAP & Charitable Trusts
RAP does not apply to charitable trusts
What happens if a charitable trust is impossible to carry out? There are two alternative solutions:
- A resulting trust:
- Cy Pres
A resulting trust:
the corpus is returned to settlor if alive,
and if not, to settlor’s estate (which means, to the
residuary devisees if any, and if none, to the intestate
takers).
Cy pres means:
as nearly as possible
Rules for Cy Pres
[1] In cy pres, if the court finds that settlor had a general charitable intent (to help the poor who are sick) and only the mechanism for effectuating that intent is not possible or practicable (a free hospital), the court can modify the mechanism, cy pres, as nearly as possible, to effectuate settlor’s general intent.
[2] Here, the court can change the mechanism from a free hospital to a free out-patient clinic, if we stipulate that there is enough money to build and fund a free clinic. This is classical cy pres.
[3] In Summary: If settlor manifests a general charitable intent, but the mechanism for effectuating that intent is not possible or practicable, the court can modify the mechanism cy pres, as nearly as possible, to effectuate S’s general charitable intent.
How do we know if settlor’s charitable intent was general (so that cy pres can be used), or specific (so that the trust fails and we have a resulting trust to return the property back to the settlor or settlor’s estate)?
We introduce both intrinsic evidence (the trust instrument) and extrinsic evidence to ascertain settlors intent
Remember, if settlor has a specific charitable intent, cy
pres cannot be used.
Who invokes Cy Pres?
Only the court invokes cy pres, not the trustee on his own.
Trustee may petition the court, but only court has the cy pres power.
