Charitable Trusts and Cy Pres

Under the Statute of Elizabeth, a charitable trust is a trust for eduction, the alleviation of poverty, alleviation of sickness, to help orphans. Under the restatement, it's any trust which confers a substantial benefit upon society. Examples of charitable trusts:

1. helping the poor;
   
2. advancing eduction;
   
3. helping the sick; or
   
4. promoting religion.
   

Creation of a charitable trust
A charitable trust is created in the same way that a private express trust is created. You need a manifestation of trust intent which can be done (1) at the testator's death by will or (2) during the settlor's lifetime by declaration of trust or by deed (3) of a presently existing interest in property that can be transferred (4) for a legal charitable purpose.

Beneficiaries of a charitable trust
In a charitable trust, there are no ascertainable beneficiaries, as in a private express trust because the beneficiary of a charitable trust is society at large. While an individual may receive an incidental benefit, the focus is on the society at large.

Where the beneficiary is of a small group of people, is this a charitable trust or a private express trust? For example, assume the settlor creates a trust to alleviate poverty among his poor relatives. Is this a charitable trust or is this a private express trust? Courts are split. One view is that this is a private express trust because only a few people are getting a benefit. Another view is that this is a charitable trust because whenever poverty is elimiated, society benefits.

Why care if the trust is a private express trust or a charitable trust? Because of the Rule Against Perpetuities (RAP) and Cy Pres.

Rule Against Perpetuities
The common law rule against perpetuities still applies in many jurisdictions but the rule does not apply to charitable trusts. Thus, a trust to alleviate poverty among the settlor's poor relatives, assuming this is a private express trust, will violate the RAP because it can vest more than 21 years after a life in being (it could vest 1000 years from now). A charitable trust, on the other hand, is not affected by the RAP. Thus, a charitable trust, such as a university chair, can endure forever.

Cy Pres
Assume settlor creates a charitable trust to build and maintain a free hospital for the poor. This is a good charitable trust. But let us assume that there is not enough money in the trust to do this. What happens if the charitable trust becomes impossible to carry on? There are 2 solutions. The first solution is a "resulting trust" and the corpus is returned to the settlor if alive and if not, to the settlor's estate or heirs. The second solution is cy pres.

Under the doctrine of Cy Pres ("as nearly as possible"), if the court finds that the 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 practical (a free hospital), the court can modify the mechanism, cy pres, as nearly as possible, to effectuate settlor's general intent. The court may change the mechanism from a free hospital to a free out-patient clinic, if there is enough to build and fund a free out-patient clinic.

If the settlor manifests a general charitable intent but the mechanism for effectuating that intent is not possible, the court can modify the cy pres, as nearly as possible, to effectuate the settlor's general charitable intent.

How do we know whether the settlor's intent was general (so that cy pres can be used) or specific (which results in a resulting trust back to the settlor)? Introduce intrinsic and extrinsic evidence to ascertain the settlor's intent.

The following is an example where cy pres cannot be used. The settlor creates a charitable trust for Syracuse University Medical School. There is evidence that the settlor graduated from Syracuse University, taught there, was a dean there, and the settlor gave much money to the Syracuse University Medical School during his life and seldom to any other charity. The settlor has a specific charitable intent. The consequence is that we cannot use Cy Pres and if the trust becomes impossible, the principal will be placed in a resulting trust back to the settlor.