12/19/2011 04:40:00 PM EST
When Giving Is Frustrated: The Application of Cy Pres to Charitable Trusts
By: Jennifer Hillman
In the past, I've written about non-economical trusts and the procedure under NY EPTL 7-1.19 whereby a court may terminate a trust if it is economically impracticable for the trust to continue. When the trust is charitable in nature, cy pres or "as near as possible" may be applied where the original particular purpose of the trust has become impracticable or impossible. This often comes up when a charitable gift is made and the named recipient of the gift does not exist, has dissolved, or no longer conducts the activity for which the gift is made. A charitable trust can also become impracticable when the specific terms of the trust cannot be carried out because the funds available have depleted.
A recent case out of the Nassau County Surrogate's Court highlights a cy pres application under NY EPTL 8-1.1. In Matter of Tauber, N.Y.L.J., Dec. 2, 2011, at 35 (Sur. Ct. Nassau County) (McCarty, J), [enhanced version available to lexis.com subscribers] the co-trustees sought to apply cy pres to two (2) sections of a revocable inter vivos trust. In the first section, the trust sought to create and fund a foundation, the income of which was to be distributed to an individual to provide monetary support for continuing education. However, the sum available to the trust of $200,000 was inadequate to fund and administer a foundation over any substantial period of time. The second section of the trust at issue was to establish an endowment to fund a fellowship at a local medical school.
However, the $266,000 of available funds were insufficient to establish any fellowship and the medical school was prohibited from offering an unaccredited fellowship.
When literal compliance with the terms of a charitable gift is impracticable, the Court can direct the application of the funds in a manner which will most effectively carry out the charitable purpose. Matter of Tauber, N.Y.L.J., Dec. 2, 2011, at 35 (Sur. Ct. Nassau County) (McCarty, J)[ lexis.com]; see also Matter of MacDowell, 217 N.Y. 454 (1916) [enhanced version available to lexis.com subscribers]. The requirements for cy pres are (1) that the trust is charitable in nature; (2) the language of the instrument when read in light of all attendant circumstances must indicate a general charitable intent; and (3) the particular purpose for which the trust was created has failed or become impracticable.
After reviewing the application, the Court granted the requested relief. The funds for an educational foundation were instead distributed to a community fund to establish a fund with similar goals. In addition, the Court approved the plan of the trustees to establish a fund at the medical school, which would be administered by the school for the benefit of fourth year medical students and fellows. The Court opined that the plan of the trustees did not effect a change of the charitable institution or significantly alter the classification of the recipients. Thus, this most closely resembled an administrative change, which can be effectuated under the doctrine of equitable deviation (EPTL 8-1.1), as well as the higher standards under cy pres.
A trust must be strictly administered by the terms and language within. When drafting documents, it is important to confirm the correct legal name of the charitable institution and clearly describe the intended beneficiaries of any charitable gift and the manner in which it is to be utilized. However, there are instances when a charitable institution changes its name or merges with another institution. When drafting, it is advisable to discuss these issues with your client, and consider successor beneficiaries or alternative gifting plans where appropriate.
Jennifer F. Hillman is an attorney at Ruskin Moscou Faltischek P.C., Uniondale, New York where her practice focuses in the area of trust and estate litigation.
. . . .
Explore the LEXIS.com Estates, Gifts & Trusts and Elder Law resources
Discover the features and benefits of LexisNexis® Tax Center
For more information about LexisNexis products and solutions connect with us through our corporate site.