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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.
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