CRAFTING DONOR AGREEMENTS THAT WITHSTAND THE TEST OF TIME ©2014 Stokes Lawrence, P.S. • What We Will Cover Today: • Problems that Arise - Case Examples • The Law • What To Include in an Agreement • How to Resolve Issues that Do Arise ©2014 Stokes Lawrence, P.S. 1 CASE LAW EXAMPLES ©2014 Stokes Lawrence, P.S. 2 Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. • "In the event there is an institution in the City of South Bend at the time of my death or within two years after the time of my death, which has for its purpose of its existence the maintenance of a home for old people irrespective of their religious beliefs upon at least a partial charitable basis then I desire and direct my said executor to turn all the rest and residue of the property of which I may die seized to said institution." • Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. v. South Bend Old People's Home, Inc., 48 N.E.2d 851, 854, 48 N.E. 2d 851 (1943) ©2014 Stokes Lawrence, P.S. 3 Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. • If no such institution exists in South Bend at my death or two years later, the residue is to be distributed between two homes for senior citizens and an orphanage, all identified by name, as takers in default. • After a hearing, the South Bend Old People’s Home, Inc. was selected as the recipient of the gift. ©2014 Stokes Lawrence, P.S. 4 Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. • The South Bend Old People’s Home, Inc. never incorporated and never acquired other assets. • Default takers filed suit to have the assets transferred to them. ©2014 Stokes Lawrence, P.S. 5 Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. • Court Holding: • The Gift was Outright and Fully Vested • It was "nothing more than a gift to a charitable institution in whose purposes and objects he was sympathetic." ©2014 Stokes Lawrence, P.S. 6 Ebenezer's Old People's Home of Evangelical Ass'n of Ebenezer, N.Y. • Court Holding: • “The true rule is that--'conditions subsequent, having the effect in case of a breach to defeat estates already vested, are not favored in law, and hence always receive a strict construction.' A condition subsequent will not be raised by implication from a mere declaration in the deed that the grant is made for a special purpose, without being qualified with words to make such a condition." ©2014 Stokes Lawrence, P.S. 7 Matter of Booker • Leon C. Booker created a trust in 1969 with approximately $700,000. • Purpose: “[T]o construct, fully equip and furnish a forty (40) bed Rest Home in the City of Dayton, Columbia County, Washington . .” • To have 20 single patient rooms, 10 double patient rooms, each with private bath and bathtub. Several other specific requirements. • “To be constructed so that it is adjoining or attached to the Columbia County General Hospital . .” Matter of the Trust of Booker, 37 Wash. App. 708, 682 P.2d 320 (1984) ©2014 Stokes Lawrence, P.S. 8 Matter of Booker • Contemplated accumulation of assets over time, that bids would be received, and when “reasonably certain” that the trust is sufficient, the hospital district is to be apprised to see if it will take on the project. • If the hospital district “does not desire the Rest Home, refuses to agree to construct, equip and furnish the Rest Home in the manner directed herein or at any time should the Trustee absolutely determine it is impossible to accomplish the Trust charitable residuary purpose,” the funds are to pass to the alternate beneficiary - St. Mary Community Hospital in Walla Walla. ©2014 Stokes Lawrence, P.S. 9 Matter of Booker • Hospital district filed a petition seeking an interpretation of the terms of the trust. The alternate taker also filed a petition asking that the trust benefits be given to them if the district did not proceed as provided in the trust. • Lower Court: Allowed deviation from the terms to construct fewer units with fewer beds among other things. • Alternate taker appeals - on basis the trust has a specific intent that there be a gift over if the stated purpose is impossible to accomplish, including the accumulation of adequate funds to construct the home as specifically directed. ©2014 Stokes Lawrence, P.S. 10 Matter of Booker • Court Holding: • The trust fund vested immediately on the death of Mr. Booker. The charitable purpose was to construct a rest home. That purpose can still be accomplished, so the trust does not fail. • Deviation was appropriate as it is reasonably necessary in effectuating the primary purpose of the trust. • “Noncompliance with detail provisions of a trust does not give rise to a transfer to the alternate beneficiary as such provisions are not of controlling importance. (Citing Trustees of Dartmouth College v. Quincy, 357 Mass. 521, 258 N.E. 2d 745, 753 (1970).) ©2014 Stokes Lawrence, P.S. 11 Niemann v. Vaughn Community Church • In 1956, the Emmanuel Congregational Church of Vaughn deeded property to the Vaughn Community Church “with the stipulation that the property shall forever remain for the perpetual use of Protestant Evangelical Churches of the Community of Vaughn.” • The Church grew dramatically. In 1999, 79% of the congregation voted in favor of selling the property and using the proceeds to construct a new church on another parcel of property. • Suit was brought by Niemann, a parishioner at the Vaughn Community Church, to enjoin the church from selling the property. Niemann v. Vaughn Community Church, 154 Wn2d 365, 113 P.3d 463 (2005) ©2014 Stokes Lawrence, P.S. 12 Niemann v. Vaughn Community Church • Trial Court Holding: • The deed created a charitable trust, with the Vaughn Community Church as the primary beneficiary. • Found the overriding and dominant intent in conveying the property was to “assist and ensure the continuation of the Protestant evangelical ministries of the Vaughn community through VCC, regardless of where they were specifically located . .” • Applied (without distinction) the doctrines of cy pres and equitable deviation to modify the deed to allow the sale and the use of proceeds to finance a new church. ©2014 Stokes Lawrence, P.S. 13 Niemann v. Vaughn Community Church • Court of Appeals Holding: Affirmed ©2014 Stokes Lawrence, P.S. 14 Niemann v. Vaughn Community Church • Supreme Court Holding: • The determination that the deed created a charitable trust was not appealed, so that ruling stands. • Applied the doctrine of equitable deviation and upheld the trial court’s modification of the deed. • NOTE: Justice Madsen’s concurring and dissenting opinion - the deed conveyed a fee simple absolute and no trust was created. ©2014 Stokes Lawrence, P.S. 15 Matter of the 1934 Deed to Camp Kilworth • In 1934 land was deeded to the Boy Scouts of America on the “express conditions that [the Boy Scouts] shall never convey, lease or encumber said premises . and shall never allow the same to come into the possession of any other party.” • The deed provided that if the condition was violated, the property was to revert to the grantors or their heirs. Matter of the 1934 Deed to Camp Kilworth, 149 Wash. App. 82, 201 P.3d 416 (2009) ©2014 Stokes Lawrence, P.S. 16 Matter of the 1934 Deed to Camp Kilworth • In 2006 the Boy Scouts petitioned to remove the reversionary clause and use the proceeds to fund other Boy Scout camps on the basis that this was a trust and the court could modify the trust under the doctrine of equitable deviation. • Trial Court Holding: The petition was granted and the reversionary clause was removed from the deed. ©2014 Stokes Lawrence, P.S. 17 Matter of the 1934 Deed to Camp Kilworth • Court of Appeals Holding: • Trust relationship is created where one party grants, with inent, property to a second party, the trustee, for the benefit of a third party. • Granting a gift does not establish a trust relationship if there was no intention to do so. • An interest subject to a condition subsequent is not, because of the condition, held in trust. Restatement (Second) of Trusts §2 (1959) ©2014 Stokes Lawrence, P.S. 18 Matter of the 1934 Deed to Camp Kilworth • Court of Appeals Holding: • Held - no trust was created. The deed was a conveyance subject to a condition and was not subject to revision. • COMPARE decision in Niemann v. Vaughn ©2014 Stokes Lawrence, P.S. 19 WHAT IS THE LAW? ©2014 Stokes Lawrence, P.S. 20 CY PRES ©2014 Stokes Lawrence, P.S. 21 Cy Pres • Restatement (Second) of Trusts § 399 (1959) • If property is placed in trust for a particular charitable purpose, and it is or becomes impossible, impracticable or illegal to carry out the particular purpose, and if a more general charitable intention is also expressed, the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor. ©2014 Stokes Lawrence, P.S. 22 Cy Pres • Restatement (Third) of Trusts § 67 (2003) • Extends the doctrine to circumstances where it would be wasteful to carry out the particular stated purpose. ©2014 Stokes Lawrence, P.S. 23 Cy Pres • Must find: • Specific purpose gift • It is now impossible, impracticable, illegal or wasteful to carry out the specific purpose • General charitable intent ©2014 Stokes Lawrence, P.S. 24 Cy Pres • Traditionally cy pres only applies to charitable gifts in trust • Some courts now apply cy pres concepts to outright gifts and other charitable interests ©2014 Stokes Lawrence, P.S.