CHARITABLE TRUST
The arrangement by which real or PERSONAL PROPERTY given by one person is held by another to be used for the benefit of a class of persons or the general public.
The law favors charitable trusts, sometimes
called public trusts, by according them certain
privileges, such as an advantageous tax status.
Before a court will enforce a charitable trust,
however, it must examine the charity and evalu-
ate its social benefits. The court cannot rely on
the view of the settlor, the one who establishes
the trust, that the trust is charitable.
In order to be valid, a charitable trust must
fulfill certain requirements. The settlor must
intend to create this type of trust. There must be
a trustee to administer the trust, which must
consist of some res or trust property. The chari-
table purpose must be expressly designated. A
definite class of persons comprised of indefinite
beneficiaries within it must actually receive the
benefit. The requirements of intention, the
trustee, and the res are the same in a charitable
trust as they are in any other trust.
Charitable Purposes
A charitable purpose is one designed to ben-
efit, ameliorate, or uplift mankind mentally,
morally, or physically. The relief of poverty, the
improvement of government, and the advance-
ment of religion, education, and health are some
examples of charitable purposes. Trusts to pre-
vent cruelty to animals, to erect a monument in
honor of a famous historical figure, and to beau-
tify a designated village are charitable purposes
aimed, respectively, at fostering kindness to ani-
mals, patriotism, and community well-being.
The definition of charitable purposes is
derived from an old ENGLISH LAW, the Statute of
Charitable Uses, but has been expanded
throughout the years as new public needs devel-
oped.
Beneficiaries
The class to be benefited in a charitable trust
must be a definite segment of the public. It must
be large enough so that the community in gen-
eral is affected by, and interested in, the enforce-
ment of the trust, yet it cannot encompass the
entire human race. Within the class, however,
the specific persons to benefit from the trust
must be indefinite. A trust “for the benefit of the
orphans of American veterans of the Vietnam
conflict†is charitable. The orphans of such vet-
erans constitute a definite class. The indefinite
persons within the class are the ones who are
ultimately chosen by the trustee to be paid the
benefits. The class is large enough so that the
community is interested in the enforcement of
the trust.
A trust for named persons or a trust for
profit cannot be a charitable trust. A trust “to
construct and maintain a hospital†might be
charitable, even though the hospital charges the
patients who are treated, provided that any prof-
its realized are used solely to continue the chari-
table services rendered and are not paid to
private persons.
A trust that serves both charitable and non-
charitable purposes will fail if the two are insep-
arable. For example, suppose a settlor bequeaths
$500,000 to a trustee “to hold in trust for the
benefit of all the schools in a particular town.â€
The settlor’s daughter is the residuary legatee of
the estate, who will inherit the remainder of the
estate after the testamentary dispositions are sat-
isfied. Some of the schools in the town are pub-
lic and charitable institutions and some are
private and operated for profit. The settlor has
not apportioned the $500,000 between the pub-
lic schools and the private schools. The valid
part—to be given to public schools and charita-
ble institutions—cannot be separated from the
invalid part—the disposition to private or profit
making institutions; therefore, the trust fails as a
charitable trust. The trustee holds the $500,000
in a RESULTING TRUST for the settlor’s daughter,
since the settlor’ disposition cannot be valid as
a charitable trust because there is no indefinite
beneficiary.
If a trust has both charitable and nonchari-
table purposes and if the maximum amount to
be used for noncharitable purposes can be
determined, the trust fails only with respect to
that amount pertaining to noncharitable pur-
poses, which will be held in a resulting trust by
the trustee for the settlor’s statutory heir or
residuary legatee. The remainder is a valid char-
itable trust.
As a general rule, a charitable trust can be
eternal, unlike a private trust, which must com-
ply with the RULE AGAINST PERPETUITIES,a
principle limiting the duration of a trust. With
respect to a private trust, the designated benefi-
ciary is the proper person to enforce the trust,
but in a charitable trust, the state attorney gen-
eral is the one to enforce it. The settlor, his or her
heirs or personal representatives, the members
of the general public, and possible beneficiaries
cannot maintain a lawsuit for the enforcement
of the trust.
Charitable trusts yield substantial tax bene-
fits to donors, whether in the form of INCOME
TAX deductions, tax shelters, or reduced inheri-
tance taxes. Typically under charitable remainder
trusts, immediate income tax deductions can
also be matched with avoidance of capital gains
taxes if the donor funds the trust using certain
types of assets. The charitable lead trust, which is
often used in estate planning, commonly bene-
fits heirs. After its duration, the principal assets
return to the donor’s heirs subject to reduced gift and estate tax.
FURTHER READINGS
Parks, Charles T., Jr. 2003. “The Charitable Lead Trust: Why
It Works Even in a Down Market.” Faegre & Benson LLP.
Available online at
Teitell, Conrad. 2001. “Tax Primer on Charitable Giving.”
Trusts & Estates (June 1).
CROSS-REFERENCES
Charities; Estate and Gift Taxes; Heir; Taxation.
