So Near and Yet So Far: Charitable Life After Death

Posted in: Family Law

Margaret Young was an artist and an art lover. She died in Orlando, Florida, in 2005. She left money in trust for one daughter, Kit Knotts, for life; and she left money in another trust for a second daughter, Dee Miller, also for life. After the death of each daughter, the money left in each trust was to go to the Orlando Museum of Art (OMA). But the gift to the museum was specific; the money was to go into the museum’s “Permanent Collection Fund, and used to add to their permanent collection.”

Knotts has now died, and her trust fund is worth $1,800,000. (Miller is still alive, and the current value of her trust is comparable.) OMA will accept this gift, of course, but they would like to use it for general operating expenses rather than solely to acquire new art for the permanent collection. Due in large part to a scandal having nothing to do with this trust, the museum is operating at a substantial deficit. The museum held an exhibition in 2022 purporting to feature paintings by Jean-Michel Basquiat. The paintings were dramatically seized off gallery walls by the FBI as part of an “art crime” investigation; an auctioneer in Los Angeles later admitted that he and a colleague had forged them. According to news reports, they finished the last fiscal year with a $1 million shortfall on a total budget of $4 million. OMA has undertaken several initiatives to generate revenue—and is still in litigation against the art forgers. But there is no question that a $1.8 million influx of cash from Margaret Young’s trust would come in very handy right now.

OMA has filed a petition in probate court in Orange County, asking the court to remove the restrictions on the money. Although the museum claims that the financial deficit is not the reason for the requested modification, the effect of the modification, if granted, would be to allow the museum to bridge the budget gap. Specifically, the museum wants permission to use the money from this trust to support the museum’s existing permanent collection rather than to add to the collection by purchasing new art. In effect, the museum would like permission to spend the money on whatever expenses it chooses, such as staff salaries.

An Unusual Situation, but a Common Tension

The financial fallout from the Basquiat scandal has put extreme financial pressure on the Orlando Museum of Art—a very specific situation that likely motivated this museum’s plea to have trust restrictions removed. But these types of restrictions are often a source of tension between donors and charitable recipients. Donors typically want to exert a fair amount of control over how their money is spent, and it is often given with strings attached. Non-profit organizations, on the other hand, typically prefer to have unrestricted money that they can use in the way they feel will best serve the organization’s mission.

At the outset, donors win this battle—they make gratuitous transfers through gift, will, or trust, and impose conditions or limitations on the transfer. Outside of the rare case in which a donor imposes a condition that requires illegal conduct or something that grossly violates “public policy,” there is nothing per se illegitimate about these restrictions. The American legal system operates with a strong default in favor of donor control. Donors are under no obligation to devote their resources to their highest and best use. Quite the contrary, they can devote massive wealth to pet projects that reflect highly idiosyncratic preferences. Charitable entities can always turn down gifts if they do not want to spend the money in the way the donor desires. But there are circumstances in which a court will rule that a recipient is entitled to keep the money without honoring the restrictions. A court can, for example, interpret the language of a donative instrument to reflect the donor’s motivation rather than as a true condition or restriction. Ambiguous language in an instrument can be deemed “precatory” and treated as an expression of the donor’s hope for how the funds will be used rather than as a condition on the gift. There is also a doctrine, which we will discuss below, under which a court can allow a recipient to use a charitable gift for a different purpose than the original one if circumstances have sufficiently changed.

Orlando Museum of Art’s Arguments

In this case, the museum is asking a court to give it permission to spend the money it received from Margaret Young’s trust for things other than buying new art. First, it argues that the organization does not have something called the “Permanent Collection Fund,” which makes it impossible for the museum to carry out Margaret Young’s wishes in the literal sense. They seem to be arguing that it would make more sense to lift the restriction than to force the museum to create a new fund with that name that was solely devoted to the acquisition of new art. (The petition is not publicly available at this point.) According to media reports, some donors and supporters of the museum do not think the museum should be seeking this relief; they worry that other donations intended for the purchase of new art might also be diverted to operating expenses, contrary to the donor’s wishes. Second, the museum argues that the trust should be modified under the cy pres doctrine because the donor’s original intent has become impossible to carry out. In order for the museum to add to its permanent collection at some point, it needs to support its existing collection now through a time of financial difficulty.

Who is the museum fighting against in court? With a non-charitable trust, such as one created to benefit the descendants of a donor, the individual beneficiaries have standing to sue if they believe a trust is being mismanaged or operated inconsistently with a donative instrument. Those beneficiaries are the ones who stand to lose out if funds are misspent, for example, or if a trustee favors one beneficiary over others. But a necessary feature of a charitable trust is that there are no defined, individual beneficiaries. Instead, a charitable trust must serve a recognized charitable purpose such as reduction of poverty or the advancement of education. So there is no aggrieved present or future beneficiary who can take a trustee to task or challenge their authority in court. Instead, most states authorize the attorney general of the state to oversee and enforce charitable trusts. But in this case, although there are third parties who clearly oppose the museum’s proposed course of action, the Attorney General of Florida has submitted a letter in support of the museum’s request.

Enforcement by the attorney general is just one of the ways that charitable trusts and foundations are treated differently under the law. Charitable gifts and foundations are said to be “favorites of the law.” Gifts to charities at death are not subject to the estate tax, for example. Charitable trusts also are not subject to the Rule Against Perpetuities, which would limit their duration. If managed well, a charitable trust can last forever. But that feature creates problems of its own. The longer a trust lasts, the more likely it is that its original purpose will become outdated. A donor might, for example, establish a trust to support the search for the cure to a particular disease. What should happen once the cure is found? The trust could terminate because its material purpose has been achieved, or the entity managing it might ask a court to authorize a shift in focus to search for cures for related diseases, or to fund other types of medical research. Trust purposes can become illegal, impossible, impractical, or just wasteful, because the society of a particular era might be drastically different from the one the donor lived in.

The Cy Pres Doctrine

The legal doctrine that governs efforts to modify a charitable trust is called cy pres, a phrase in old French which means, roughly, “as near as possible.” If the doctrine applies, then a court can allow charitable trust assets to be spent for something other than the original purpose. The doctrine requires proof of two things: (1) that the original purpose has become illegal, impossible, or impractical; and (2) the donor had “general charitable intent” and would have preferred a modification to allow the assets to be used for another charitable purpose, rather than terminate the trust. The doctrine allows a charitable trust to continue in existence despite changed circumstances rather than forcing it to fail. The power of courts to redirect charitable trust assets in this way arises from their general equitable powers over charities. It is arguably a necessary power in order to meet the contingencies that arise over time.

In the leading American case, Jackson v. Phillips, the testator, who died in 1861, left money in trust to be used for speeches and lectures against slavery, and also money “for the benefit of fugitive slaves.” By the time the case came up, in 1867, there were no slaves at all, but the court, rather than end the trust, applied the cy pres doctrine. The money eventually went to be used for the benefit of “the freedmen (late slaves).” In the many decades since, the cy pres doctrine has made its way into the law of most states, and it is codified in the Uniform Trust Code, which has influenced the laws of some of the states. Modern formulations of the doctrine often include “wastefulness” as an additional reason to justify shifting from a trust’s original purpose.

Art Philanthropy and the Battle for Control

The Orlando Museum of Art case is by no means the first case in which a charity has sought to use cy pres to get out from under restrictions on a charitable gift. Litigation over the Barnes Foundation is probably the most notable example. Albert Barnes, who died in 1951, was an eccentric millionaire with a sharp eye for art. He amassed a fabulous collection: 181 Renoirs, 69 Cezannes, 59 Matisses, and many other masterpieces, including works by Van Gogh, Titian, and Goya. He built a place in Merion, Pennsylvania, to house his art, but he laid down some rather odd rules. Visitors could look at the works only on Saturdays, and not at all in July and August. No work was to be lent out. No entrance fees were to be charged. No dinners or banquets were to be held on site. Everything was to remain exactly as it was and where it was—in a suburb of Philadelphia with few tourists. His wishes were carried out—until they weren’t. The Foundation developed severe financial problems. Something would have to be done; moreover, it was argued, the strict rules laid down by Albert Barnes no longer served the public interest. Litigation engulfed the Barnes Foundation. In the end, Albert Barnes (or his ghost) lost the battle. Today, the Barnes collection is no longer in Merion; it is in a new building, in the heart of downtown Philadelphia. It is open to the public—and not just on Saturdays. None of Albert’s quirky rules survived. Most people think the present arrangement is better than the irrational and idiosyncratic rules laid down by Albert Barnes. But it is certainly not what Barnes wanted—or expected.

Then there is the case of the Benjamin Ferguson Fund in Chicago. Benjamin Ferguson died in 1905 and left a million dollars to the Art Institute of Chicago, to be used for “erection and maintenance of . . . statuary and monuments,” in public places in the city, honoring figures in American history. The Institute did precisely this for a while, but in the early 1930s, the Institute stopped paying for sculpture in Chicago. It went to the local court and asked the court to interpret the word “monument.” Could it mean a building? The court rather carelessly said yes. The Institute then simply accumulated the income of the trust. It went back to the court in the 1950s, now with plans to use the money to build an administrative wing for the Institute. There were protests by arts groups and others arguing that this was not what the money was supposed to be used for. But the Institute won its battle. The court stuck by its earlier decision. The Institute built an administration building, in large part with Ferguson’s money. They at least had the decency to name the building after Ferguson. Recently, as a result of pressure, the Art Institute has been using some of the remaining money to renovate and preserve sculptures that had originally been built with Ferguson’s money.

Donors Versus Recipients: Whose Desires Should Control?

The question posed in all three cases is simply this: how sacred are the wishes of donors of charitable gifts? In theory, quite sacred, except if the gift simply cannot be carried out, or has become illegal. Stephen Girard died in 1831. He was one of the richest men in the United States and died a childless widower. He left money to build and run a school, specifying in breathtaking detail how the school was to be built and run. It was, he specified, for the benefit of “poor white male orphans, between the ages of six and ten.” These orphans would live and learn in Girard’s school. The school is almost two hundred years old and has a long history of litigation. In our times, a trust for the benefit of “poor white male orphans” is legally offensive. Today, half of the students are women, and 90% of them are African-Americans. The school is very much alive, but it is very different from Girard’s original plan.

All of these donors are, of course, quite dead. Girard has been dead the longest. Margaret Young died in 2005. Albert Barnes died in 1951. Benjamin Ferguson died in 1905. In the case of Stephen Girard, Albert Barnes, and Benjamin Ferguson, one can ask: how long does a dead hand govern? In theory, forever. In practice, not. After all, the world moves on. The law changes with changing times. And at some point, whatever the law may say, we no longer care what Stephen Girard would have wanted. He has been dead far too long to matter.

The real issue, however, in the case of the Barnes Foundation—and, arguably, in the case of Margaret Young’s estate—is whether we can change the terms of a charitable gift or foundation because there are better things to do with the money. Obviously, the law is not going to allow using Margaret Young’s money to feed the hungry or house the homeless, even if we think this would be a better use of cash than buying art for the Orlando Museum. The spirit of cy pres, after all, is to find a use which is as close to the original intent as possible. Perhaps if we could summon Ms. Young using a Ouija board and ask her what she would prefer to do right now, we could find out what she would like to do with the money in the light of present circumstances. She was obviously fond of the Orlando Art Museum. Now it was struggling in ways she could not have predicted: and her money would come in very handy.

The problem, in the case of the Ferguson fund, and perhaps in the case of Margaret Young’s gift, is that the institution in control of the money could easily have done what the donor wanted. That would have been the safest course—and probably what usually happens. But not always. For the Young estate, and the Ferguson estate, the donor’s wish ran up against the feeling that there was a better use of the money. That is not, of course, a legal argument. And it is hard to make this argument out loud, in front of a judge. It is also hard to predict how the court might rule in a case that presents this issue.

One of the most contentious cy pres cases involved a trust established by Beryl Buck, who died in 1975 and left what turned out to be an enormous estate (part an enormous oil fortune). Her will set up a trust, to be used “exclusively” for the “needy in Marin County, California, and for other charitable, religious or educational purposes in that county.” Marin County lies across the Golden Gate Bridge, just north of San Francisco. It is a county with beautiful scenery, and a population with a reputation for quirky, new age tendencies. The San Francisco Foundation, which had duties as a trustee, filed a lawsuit, asking the court to apply the cy pres doctrine and modify the terms of the gift. Marin County was a rich county, it was claimed; it was therefore “impracticable and inexpedient” to spend all the income in Marin; why not distribute some of the Buck income outside the boundaries of the county. Essentially, the trustee was arguing that there were better uses of the money, and that they could do more good for more people if they were not restricted to Marin County. Basically, the trustee lost the case. Although some minor changes were allowed, the Buck Trust is still focused on Marin County. Beryl Buck had better luck than Benjamin Ferguson, but no doubt this issue will arise again. Big money attracts litigation.

Girard’s problem, and perhaps Margaret Young’s problem, was to be too specific in spelling out what was to be done with the money. Beryl Buck also faced something of a similar problem. The giant foundations of today can avoid this particular pitfall. They tend to have very broad, very vague charters. The Ford Foundation is set up for “scientific, educational, and charitable purposes,” which covers a tremendous amount of ground. Yet, in a way, broad charters simply give foundations something like a built-in cy pres mechanism—but one that is administered, not by a court, but by the men and women who run the Foundation. Enormously rich people establish these foundations. Years pass. Generations pass. The Ford Foundation is almost a century old. It is not dominated by the family; rather, it is run by professional managers. Its policies change with the times. Are they the policies that Henry Ford would have preferred? Almost certainly not.

Can You Take it With You?

At this point, it is not clear whether the Orlando Art Museum will get its way. The court will decide. On one side is the museum, on the other side is the late Margaret Young, and the wishes she expressed before she died. We know that you can’t take it with you. You also, when you die, lose some of the power to direct what should be done with your worldly goods.

Posted in: Family Law

Tags: cy pres doctrine, trust

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