A trust is a legal device that allows a property’s owner to transfer that property to a beneficiary, through the use of a third party, known as a trustee. The trustee is responsible for managing the property on behalf of the beneficiary. Trusts are generally an efficient way for a person to transfer their assets in a way that they can control and manage. An example of this would be if the property’s owner places specific conditions on the trust property, and those conditions must be met before the trustee will transfer the property to the beneficiary.
Charitable trusts are those that have been created for charitable purposes. In order to be a valid and legal trust, a charitable trust must have the general purpose of benefiting the public good. Charitable purposes could include:
- Giving to the poor, such as a homeless shelter or food bank;
- Advancing education and knowledge, such as a scholarship fund;
- Church or religious purposes, such as leaving a trust to a specific church or religious organization;
- Promoting public health, such as a community health clinic; and/or
- Advancing public government interests, such as parks, museums, etc.
The charitable trust’s beneficiary (or beneficiaries) must be indefinite and cannot be an individual. This means that charitable trust beneficiaries cannot be a person, rather beneficiaries must be an organization or group. The charity acts as the trust’s trustee, and oversees the funds while monitoring their distributions to the recipients.
They are also responsible for investing the property, handling funds, and other activities related to the management of the trust. Contributions to a charitable trust are generally tax exempt, according to IRS rules.
What Are Some Common Disputes Associated With Charitable Trusts?
Most disputes related to trusts arise when the trustee breaches their various fiduciary duties. This would involve the mismanagement of the trust by the trustee. An example of this would be if the trustee failed to provide accurate accounting records, or divided and distributed the property to the beneficiaries in an inappropriate manner.
The trustee is to act in a manner that serves the trust’s beneficiaries, as opposed to serving their own personal goals or needs. One of the most common disputes involving charitable trusts involves the trustee using the trust funds for their own use, against the goals of the trust itself. Some other types of charitable trust disputes include but may not be limited to:
- Disputes regarding the true purpose of the trust, due to the fact that the trust must be for a charitable purpose benefiting the public;
- Trustee mismanagement as previously discussed;
- Failure to invest the trust funds with sound business judgment; and
- Violating federal, state, or local trusts laws such as failing to report trust activity in order to avoid tax reporting.
Disputes may arise when the trust’s beneficiaries disagree regarding how the trust was constructed. Some examples include:
- Whether the trustor had legal capacity (i.e. was of fit mind) to create the trust in the first place;
- Whether the trustor was pressured or coerced to form the trust, such as being unduly influenced; and
- Whether the trustor was affected by fraud, such as the signature on the trust documents being forged.
What Happens If the Charitable Purpose Fails?
A charity may shut down, or the charitable purpose may become impossible to follow due to an unforeseeable event. If the trust’s creator intended for the trust to go to a specific charity, but the specified charity no longer exists, there are some options to choose from in order to proceed.
A court may use the Cy Pres Doctrine, under which they will choose a different charity that is as near as possible to the trust creator’s charitable intent. An example of this would be if the creator specified a school to benefit from the trust, but the school closed after the trust creator died. A court may choose a school that is similar to the original, specified school.
As previously discussed, charitable trusts are intended to be general and for the advancement of society. They should not be directed towards any specific person or individual. As such, it should not be a major issue if the original charitable purpose fails.
How Are Charitable Trust Disputes Resolved?
How a dispute is resolved depends on the type of trust being disputed, as well as the nature of the legal issues and applicable laws. Some general resolutions include:
- Removing or replacing the trustee;
- Redrafting the trust document;
- Damages award to the beneficiary; and/or
- Criminal consequences associated with breach of fiduciary duties.
A court may also issue alternative remedies. An example of this would be declaring the charitable trust invalid if the purpose does not match the definition.
Do I Need an Attorney for Charitable Trust Disputes?
If you have a dispute concerning a charitable trust, it is in your best interests to consult with a skilled and knowledgeable estate attorney. An experienced estate attorney can review the original trust documents, as well as file any necessary legal paperwork concerning the trust. Finally, an attorney can represent your interests in court.