Donors often want to ensure that a gift is used for the donor's intended purpose long after the gift is initially made. Donor restricted funds are created in a number of ways, including through conditions in a written gift agreement or under the terms of a charitable trust. Donor restrictions typically fit into one of two categories: (i) restrictions on the purposes for which the gift can be used, such as "to fund scholarships for students to travel to the Czech Republic," and (ii) restrictions on the timing and amount of expenditures from the gifted funds, usually called "endowed gifts."
Donors are not omniscient, and in many cases there may come a time when the restrictions they impose no longer make sense. For example, if the restriction had been "to fund scholarships for students to travel to Czechoslovakia," what happens to those funds now that there is no country called Czechoslovakia?
If the donor is alive and agreeable, the donor and the charitable organization can often modify the restriction without court intervention. If the donor is deceased or not agreeable, the charity can petition the court to modify the restriction under either the doctrine of cy pres or the doctrine of equitable deviation.
Cy pres derives from the Norman French phrase cy pres comme possible -- as near as possible -- and is also referred to as "the doctrine of changed circumstances." The doctrine of cy pres is invoked to modify a purpose-driven restriction. The analysis requires (i) finding that the charitable purpose has become illegal or impossible to fulfill and that the donor's intent was general and (ii) the identification of another "close" purpose that falls within the donor's general intent. As trust law has evolved, the cy pres doctrine has been broadened to apply to situations in which continued adherence to the restriction would be wasteful.
Equitable deviation is invoked to modify an administrative restriction. The analysis requires finding that there has been a change in circumstances unforeseen by the donor and that the administrative restriction would now defeat the charitable purpose. Whether the restriction is truly purpose-driven or administrative is somewhat subjective, and many practitioners will argue that a particular restriction is administrative in nature because the requirements of equitable deviation are easier to meet.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
