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Modification of Charitable Trusts—The Cy Pres Doctrine

Terms:

Cy pres:
To apply the trust funds in a manner “as nearly like” as possible to the settlor’s original charitable purpose.


Given the perpetual nature of charitable trusts, occasionally the trust outlives or outgrows the particular charitable purpose for which it was created. In those instances, the court will step in to modify the trust under the cy pres doctrine. Under cy pres, the court will apply the funds in a manner “as nearly like” as possible to the settlor’s original charitable purpose so the funds are still productive.

To invoke cy pres, the court must find the following:

  1. Designated purpose fulfilled or frustrated: The charitable purpose chosen by the settlor must either be fully accomplished before the funds were exhausted or have become illegal, impossible or at least impracticable to carry out. It is not enough that a better purpose for the funds has developed over the years.
  2. Settlor had “general” (and not restricted) charitable intent: It must appear that the settlor had a “general charitable intention” (i.e., it must not appear that the settlor intended to limit her gift to a specific charity, absolutely and without regard to changed circumstances). Rather, the intent must have been to give the gift for a particular charitable purpose.

The result of a positive finding on these two issues is that the funds will be applied to some charitable purpose that is as similar to the settlor’s original intention as is practical. If either factor is not present, the property reverts, by resulting trust, to the settlor or the settlor’s successors in interest. In addition, if the gift fails under the Rule Against Perpetuities, a resulting trust would also be the outcome.

EXAMPLE: During her lifetime, Francesca had been an avid opera fan. So that others could share her enthusiasm for opera, her will created a trust for the benefit of staging certain operas at various opera houses throughout the U.S. One opera house thought it would be prohibitively expensive (among other reasons) to stage one of the designated operas and instead chose on its own to use the funds to produce another opera by the same composer. Several years later when the trustees found out about this unilateral change, they sued the opera company for a reimbursement of the funds. If the court finds that the trust had a general purpose to produce operas, then they would not penalize the opera company for substituting productions. Conversely, if the court finds the cy pres doctrine inapplicable by agreeing with the trustees that the trust had a very specific purpose, the opera company would have to reimburse the trust for the misapplied funds.

Courts are generally reluctant to find the settlor’s intention was so restrictive as to prevent an alternate use, especially if the trust had been in operation for a long time. Yet, if it is clear that the settlor would prefer that the trust fail instead of being used for another purpose, cy pres does not apply and the trust must fail.

EXAMPLE: Gretchen bequeathed property in trust for the operation of a park for white people only. The court held that the trust failed because the park could not constitutionally be operated on a racially discriminatory basis. Since the settlor was opposed to integration, applying the cy pres doctrine would certainly go against the settlor’s intentions for establishing the trust. Accordingly, the trust would fail. See, e.g., Evans v. Abney, 396 U.S. 435 (1970).

If cy pres is applicable, the court must modify the trust in such a way as to approximate as nearly as reasonably possible the original purpose and the settlor’s probable intention.

EXAMPLE: Salena left funds in trust “to East Tabernacle Church to erect and maintain a hospital for persons suffering from West Nile disease, to be called the Martinez Memorial Hall.” If after the trust is established, there is no longer a need for this purpose, in attempting to apply the cy pres doctrine to find an appropriate alternative, the court would evaluate all three discernable purposes of the settlor: a building in her name; to be erected by East Tabernacle Church; to aid victims of West Nile disease. See, e.g., In re Scott’s Will, 8 N.Y.2d 419 (1960).