Special Rules Regarding Charitable Trusts

Question 1

Ascertainable Beneficiaries for a Charitable Trust

Answer 1

Unlike a private trust, a charitable trust cannot have ascertainable beneficiaries, unless they are a qualified charitable organization.

Question 2

RAP

Answer 2

A charitable trust is not subject to RAP under either the pure charitable purpose or the charity-to-charity exemption.

Question 3

Requirements for a Charitable Trust

Answer 3

• A charitable trust must have a charitable purpose. A charitable purpose can be broad as long as the trustee is constrained to use the trust exclusively for that objective.
• The beneficiaries must be indefinite

Question 4

Major Categories of Charitable Purposes

Answer 4

Include:

• Relief of poverty
• Advancement of education
• Advancement of religion
• Promotion of health
• Performance of gov and municipal purposes; and
• Other purposes beneficial to the community.

Question 5

Watch Out for Benevolent Purposes

Answer 5

Merely helping others will not qualify as a charitable trust.

Question 6

Distinguishing Between Charitable Purpose and a Benevolent Purpose

Answer 6

If a trust’s structure does not support its alleged purpose, it will be held to have a benevolent purpose rather than a charitable purpose (will not be a valid charitable trust).

Question 7

Indefinite Beneficiaries

Answer 7

The fact that there are a limited number of persons actually receiving funds does not cause a charitable trust to fail if the recipients are to be chosen from a sufficiently large and indefinite group.

Question 8

When Charitable Purpose Has Become Impossible/Impractical (Cy Pres Doctrine)

Answer 8

A charitable trust does not necessarily end. A court could allow the trust to continue with a similar charitable purpose under the cy pres doctrine.

Question 9

When Cy pres May Be Applied (In Regards to Charitable Purpose)

Answer 9

Where:

• the settlor’s specific charitable purpose with respect to a valid charitable trust becomes impossible, impracticable, or illegal to carry out
• the settlor had, in addition to this specific charitable purpose, a general charitable intent (i.e., the settlor’s specific charitable purpose was not intended to be exclusive).

Question 10

Gift Over

Answer 10

• If the settlor has provided a gift over in the event that the charitable purpose cannot be accomplished, this is ordinarily viewed as an indication that the settlor lacked a general charitable intent.
• Keep in mind that a gift-over will likely fail as violating RAP (therefore, grantor/settlor will get a reversionary interest)

Question 11

When a Designated Charity No Longer Exists (Cy pres Doctrine)

Answer 11

When it is no longer possible to fulfill a testator’s request to a charity because that charity no longer exists, a court will attempt to find a similar charity with similar objectives.