Charitable Trusts, Cy Pres, and the Rule Against Perpetuities in Trusts

Charitable Trusts, Cy Pres, and the Rule Against Perpetuities in Trusts

A charitable trust is an express trust whose purpose confers a benefit on the public, and it is governed by special rules that distinguish it sharply from a private express trust. The defining requirement is a charitable purpose. The Restatement and the cases recognize categories that the examiners expect you to name: relief of poverty, advancement of education, advancement of religion, promotion of health, governmental or municipal purposes, and the catch-all of other purposes beneficial to the community.

A trust to fund scholarships, to maintain a public park, to support medical research, or to feed the indigent is charitable; a trust to benefit the settlor's own family, however generous, is private. The second defining requirement flows from the first: a charitable trust must benefit the community at large or an indefinite, fluctuating class of persons, not specific named individuals. This is the inverse of the rule for private trusts, which fail without definite, ascertainable beneficiaries.

A trust 'to distribute funds among the poor children of Oakland' is a valid charitable trust precisely because the beneficiaries are an indefinite class; the same gift to 'my three named nephews' is a private trust. Where a gift names some individuals as direct recipients, courts ask whether the individuals are merely the conduits through which a public benefit is achieved (charitable) or are the true objects of the settlor's bounty (private).

Because no identifiable private beneficiary exists to hold the trustee accountable, the law supplies a public enforcer, and a charitable purpose that incidentally benefits some private persons remains charitable so long as the dominant purpose serves the public.

Two consequences follow from the public nature of a charitable trust, and both are frequent essay hooks. First, enforcement: because a charitable trust has no definite beneficiaries holding equitable title, ordinary beneficiary standing is unavailable, so the state's Attorney General has standing to bring an action to enforce the trust and police the trustee's administration.

In California the Attorney General supervises charitable trusts and may sue to compel performance, prevent diversion of funds, or remove a faithless trustee; a settlor, co-trustee, or person with a special interest may also have standing in appropriate cases, but the Attorney General is the principal enforcer. Second, duration: charitable trusts are exempt from the Rule Against Perpetuities and may endure forever. A private trust whose interests might vest too remotely runs afoul of the Rule, but a charitable trust funding a hospital or a university may continue in perpetuity.

There is an important wrinkle the examiners love: the exemption protects gifts that pass from one charity to another, but a gift that shifts from a private taker to a charity, or from a charity to a private taker, on a condition that might occur beyond the perpetuities period is not fully exempt and may violate the Rule. So a gift 'to A so long as the land is farmed, then to the Red Cross' is not saved by the charitable exemption because the present interest is private; but a gift 'to the Red Cross, but if it ceases to use the land for hospital purposes, then to the Cancer Society' is valid because the shift is charity-to-charity.

When the specific charitable purpose a settlor named becomes illegal, impossible, or impracticable to carry out, the trust does not automatically fail. Under the doctrine of cy pres — Norman French for 'as near as possible' — a court may modify the trust and redirect the funds to another charitable purpose that approximates the settlor's original objective. Cy pres has a critical threshold: the court must find that the settlor had a general charitable intent, that is, an intent to benefit charity generally, and used the named purpose merely as one means of accomplishing that broader aim.

If instead the settlor had only a specific charitable intent — an intent to benefit this particular charity or purpose and no other — then cy pres does not apply, the trust fails, and the property passes by resulting trust to the settlor or his successors. The classic example: a trust to find a cure for a disease that is later eradicated, or a scholarship for students of a school that closes. A court applying cy pres asks (1) is the original purpose now impossible, impracticable, or illegal; (2) did the settlor have a general charitable intent; and (3) what alternative purpose comes nearest to that intent.

Modern statutes, including the Uniform Trust Code provisions reflected in California practice, presume a general charitable intent and make cy pres more readily available, reversing the older grudging approach. The Restatement (Third) goes so far as to apply cy pres even to wasteful gifts. Distinguish cy pres, which alters the charitable purpose, from the doctrine of equitable deviation, which alters administrative or distributive terms (not the purpose) when changed circumstances would otherwise defeat or substantially impair the trust's accomplishment.

The Rule Against Perpetuities polices remote vesting in private trusts. At common law, no interest is valid unless it must vest, if at all, no later than twenty-one years after some life in being at the creation of the interest. An interest that might possibly vest too remotely — measured by what could happen, however improbable — is void from the outset under the rigid 'what-might-happen' approach, generating notorious traps like the fertile octogenarian, the unborn widow, and the slothful executor. California has substantially reformed this regime.

The state adopted the Uniform Statutory Rule Against Perpetuities (USRAP), codified at Probate Code §21205, which supplements the common-law rule with a 'wait-and-see' alternative: a nonvested interest is valid if it either satisfies the common-law rule or in fact vests or terminates within ninety years after its creation. Rather than voiding an interest at the outset for a theoretical possibility, USRAP waits to see what actually happens within the 90-year period.

If an interest still has not vested at the end of that period, Probate Code §21206 directs the court to reform the disposition in the manner that most closely approximates the transferor's intent and is within the 90-year limit — a reformation power akin to cy pres for perpetuities. Charitable trusts remain exempt from the Rule, as do certain commercial and pension arrangements.

For a trusts essay, identify whether any interest is contingent, whether it might vest beyond lives-in-being-plus-21-years under the common law, and then apply California's 90-year wait-and-see and reformation provisions to reach the modern result rather than mechanically striking the gift.

Key Rules Recap

• A charitable trust must have a charitable purpose (relief of poverty, advancement of education or religion, promotion of health, governmental purposes, or other community benefit) and must benefit the community at large or an indefinite class, not identifiable individuals.
• Cy pres ('as near as possible') allows a court to redirect a charitable trust to a similar charitable purpose when the original purpose becomes illegal, impossible, or impracticable, provided the settlor had a general charitable intent.
• Charitable trusts are exempt from the Rule Against Perpetuities and may last indefinitely, but a gift that shifts from a private use to a charity (or charity to private) is not fully exempt.
• The California Attorney General has standing to enforce charitable trusts because there are no definite private beneficiaries to police the trustee.
• California has abolished the common-law Rule Against Perpetuities for most interests and applies the Uniform Statutory Rule Against Perpetuities (USRAP), validating interests that in fact vest within 90 years (Prob. Code §21205).