The Secret Economy of Charitable Giving

INTRODUCTIONThe subject is clear. In Scandinavian civilization, and in a good number of others, exchanges and contracts take place in the form of presents; in theory these are voluntary, in reality they are given and reciprocated obligatorily.-Marcel Mauss, The Gift1We should often blush at our noblest deeds if the world were to see all their underlying motives.-La Rochefoucauld, Maxims2Charitable trusts and charitable giving are big business. Outright gifts to charity by individuals totaled $217.79 billion in 2011, in addition to $24.41 billion in bequests made by individuals.3 It is estimated that by the year 2055 some $41 trillion will change hands as Americans pass on accumulated wealth to the next generation.4 Much of this wealth will be transferred through the creation of charitable trusts and private foundations, or through major giving by individuals to established charities. Private foundations, organized either as charitable trusts or non-profit corporations, filed 92,624 tax returns in 2009, and these foundations held $588.5 billion in assets.5 Moreover, in the same year, these private foundations distributed $40.9 billion for charitable purposes.6 These foundations and major gifts to charitable institutions help support colleges, hospitals, art museums, and social welfare organizations, to name only some of the organizations sustained by charitable donations.In most major charitable giving-whether a donor creates a charitable trust, a private (non-trust) foundation, or makes a gift to an institution-the donor's charitable purpose is specified in a governing document. The trust instrument, the incorporation documents and organizational charter, or the gift agreement will detail the charitable purpose along with any relevant spending restrictions or conditions. Some large gifts are unrestricted, just as some private foundations have very broad charitable purposes, allowing the institution maximal latitude in spending. Restrictions on gifts range in specificity. Some gifts are lightly restricted, such as a fund at a museum for the purchase of art, while others are quite limited, such as a gift to fund an annual poetry prize at a particular college. Because charitable trusts and other private foundations can exist in perpetuity, and because a majority of donors indeed intend for their trusts to last in perpetuity,7 there exists a strong potential for the terms of the restricted funds and gifts to become outdated due to shifts in institutional needs, the state of medical research, and the social landscape.In such cases-when the controlling terms of the trust outlive the need for, or the appropriateness of resource investment-the cy pres doctrine allows courts to modify the trust terms. The doctrine is set forth in section 413 of the Uniform Trust Code, which states that courts may modify the terms of a gift if the charitable purpose "becomes unlawful, impracticable, impossible to achieve, or wasteful . . . ."8 As the comment to this section mentions, cy pres is applied not only to modify the terms of charitable trusts, but also to modify any donor restrictions placed on charitable gifts.9 Furthermore, pursuant to both the Uniform Trust Code and the Uniform Prudent Management of Institutional Funds Act ("UPMIFA"), cy pres is applicable to restricted funds held by nonprofit corporations as well as charitable trusts.10 Historically, courts have tended to apply cy pres both narrowly and infrequently, manifesting a reluctance to overturn donor intent. More recently, however, a number of highprofile cases with deeply contested results-including cases involving Fisk University, the Buck Trust, and the Barnes Foundation-have pushed questions concerning cy pres into public discourse, and propelled doctrinal reform.11In this Article, I discuss changes to the Uniform Trust Code-including the presumption of general charitable intent, the recognition of "wasteful[ness]" as a criterion for cy pres application, and the deployment of equitable deviation- and demonstrate their utility. …