***III. CHARITABLE TRUSTS; HONORARY TRUSTS Flashcards
DISTINCTIVE RULES APPLY TO CHARITABLE TRUSTS
4
1. [July 1995] Not subject to the Rule against Perpetuities; may be perpetual. Example: “to pay the income to the American Red Cross forever.”
#4. When specific charitable purpose can no longer be accomplished, may be reformed in judicial proceedings under the doctrine of cy pres. (Old French for "as near as possible.") [Feb. 1984: diverting funds to another charitable activity can't be done by trustee acting on his own; must be judicial proceeding.] -changed purpose/ purpose accomplished
Rule against Perpetuities
The Rule: “No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the interest’s creation.” [LIB + 21 years] Purpose: To limit the duration of private trusts, and placing a check on attempts to tie up property through the creation of perpetual trusts. The Rule does not apply to charitable trusts.
T’s will created a trust, “to pay the income to my son Ben for life, then to Ben’s descendants until the death of the last of such descendants. On the death of the last of Ben’s descendants, the trust principal is to be paid to my sister Ann or her then-living descendants.”
______ Is the trust (and the gift over on the trust’s termination) valid under the Rule?
alternative?
no; class closing rule doesn’t apply, Class does not close at T’s death
Texas has a “cy pres type” perpetuities reform statute: If a will or trust violates the Rule Against Perpetuities, the instrument shall be reformed or construed so as to carry out settlor’s general intent as FAR as possible within the period of the Rule (i.e., within lives in being plus 21 years).
Applying cy pres reform statute to these facts, likely result would be to reform the trust so it reads: “to pay the income to David’s descendants until 21 years after the last to die of any of David’s descendants who were living (and thus were lives in being) at Tom’s death, at which time the trust principal is to be paid to my sister Ann or her then-living descendants.”
Devise of residuary estate to bank as trustee: “The trustee shall distribute the trust income to organizations, as selected by the trustee, actively engaged in research for the prevention of polio.” [This is a valid charitable trust even though it does not have identifiable beneficiaries.] Who can enforce the trust?
ATTORNEY GENERAL, who is a PROPER party (but not a necessary party) to any suit concerning a charitable trust—the A.G. can join, but is not required to be named a party.
[July 2011] In any action involving a charitable trust, a certified copy of the petition must be sent to attorney general by registered or certified mail, so AG can decide whether to appear in the proceeding. Failure to give notice makes judgment voidable by attorney general. [July 2011] Only attorney general and trust settlor have standing to bring an action concerning a charitable trust. No other person or entity has standing. [July 2012: Potential beneficiary and possible distribute from a charitable trust had no standing to sue the trustee claiming discrimination.]
Forty years later the cure for polio is found; all research on the disease ends. The trustee petitions the court: What should be done with the trust income and principal?
Must the trustee bring a judicial cy pres action to reform this charitable trust?
If the named charitable beneficiary under a trust ceases to exist, or ceases to qualify as a
charity for federal income tax purposes
the trustee may, without court approval, name new charity as beneficiary
However, trustee must give notice of the selection to the attorney general
Client wants to bequeath $25,000 to his sister Sarah as trustee of a 30-year trust, to use the income [to maintain his rose garden] [to pay for a weekly polish-and-wax job on his beloved Porsche, which is to be parked as a headstone over his grave at the cemetery]. Client’s residuary estate will be devised to his brother Bob. Can Client create an enforceable trust for either purpose?
To have a trust, the trustee must owe enforceable duties to someone. This it is not a charitable trust and it has no individual beneficiaries who can enforce the trust. Cars [July 1992] cannot file lawsuits. This type of gift (in which an object is the beneficiary) is sometimes called an honorary trust gift. The trustee is on her honor in deciding whether to perform the trust. The gift is valid only in the sense that it will be upheld if Sarah chooses to perform. If she doesn’t, the gift fails and there is a resulting trust – here, in favor of the residuary beneficiary.
Additional problem with such trusts: Rule Against Perpetuities unless the trust is limited to 21 years’ duration. Because cars and rose gardens cannot be used as measuring lives, trust might last longer than LIB + 21 years.
Probable result under Texas’ cy pres perpetuities reform statute: If Sarah is willing to perform, honorary trust gift valid for 21 years.
the will provides: “… to use the trust income to care for my beloved cat, Figaro.”
Valid trust, when the beneficiary is an animal?
yes. Only animals alive during settlor’s lifetime can be beneficiaries, trust terminates on death of animal (or last surviving animal),
individuals named in instrument creating the trust can be used as “measuring lives” for perpetuities purposes, trust is enforceable by a person named in trust or appointed by court, and trust property not used for animal’s care distributed to settlor if living or (if deceased) under settlor’s will or by intestacy.
(However [July 2009] an outright bequest to an animal is void; animals cannot hold title to property.)
