Source: https://thismatter.com/money/wills-estates-trusts/charitable-trusts.htm
Timestamp: 2019-04-22 04:18:13+00:00

Document:
The charitable trust is a trust that serves a charitable purpose. Charitable purposes, as defined by common law and Uniform Trust Code (UTC) §405, are for poverty relief, or for the promotion of education or religion, health, governmental or municipal purposes, or for the general benefit to the community. However, many jurisdictions are more apt to accept a general community benefit only if the trust also serves at least 1 of the other charitable purposes. For instance, trusts to improve government are considered charitable trusts but not trusts for the benefit of a political party.
Although the trust document usually specifies the charitable purpose of the trust, the settlor can also allow the trustee to select the charitable purpose.
An honorary trust is a trust created for a specific purpose, where the trustee has the power, but not the duty, to carry out the settlor's intended purpose. The trust can last as long as the trustee is willing to honor the purpose of the trust while the purpose is still relevant. Common purposes of honorary trusts are for the care of pets (UTC §408) or gravesites of the deceased or his family.
Benevolent trusts, or philanthropic trusts, are also not recognized as charitable trusts unless they serve one or more of the charitable purposes.
The 2 distinctions of the charitable trust from other trusts are that charitable trusts can last indefinitely because they are not subject to the rule against perpetuities and the charitable trust must not have ascertainable beneficiaries, but must benefit the public at large. The charitable trust can have direct beneficiaries who belong to a class but cannot name individuals, unless the individuals are given the benefit so that they can serve the community at large.
However, UPC §2-907 and UTC §409 also allows a non-charitable trust without ascertainable beneficiaries to last 21 years if the purpose is lawful and the trustee is willing to honor the trust objective.
Another advantage of charitable trusts in the past is that, if there is more than one trustee, as there usually are, then the trustees can act if the majority assents to the action. This differs from private trusts which require the unanimous consent of all trustees unless the trust document specifies otherwise. Nonetheless, the modern trend has been to apply the democratic approach to private trusts as well.
The main advantage of a charitable trust over other types of trusts is that it can last indefinitely, since it is not subject to the rule against perpetuities. However, many states have eliminated the rule against perpetuities, so philanthropic trusts, or even private trusts, can endure indefinitely in those states. And under the wait-and-see approach, a trust may last a long time even if it can potentially violate the rule against perpetuities, since the courts will wait and see if the perpetuities rule is actually violated rather than declare the trust void ab initio.
Oftentimes, a charitable trust is unable to achieve its objective because of changing circumstances that the settlor did not foresee, causing the trust's objective or its administration to become moot, unworkable, illegal, or uneconomical.
The charitable trust that fails will also usually fail as a private trust since it has no ascertainable beneficiaries. Hence, under common law, a failed trust or the termination of an honorary trust is converted into a resulting trust that distributes the property back to the settlor or his estate.
If the charitable purpose fails, the settlor may have a gift-over clause, stipulating that the trust property pass to a private beneficiary. However, UTC §405(b) requires that a gift-over clause either revert to a living settlor or that the charitable trust fail within 21 years of the trust's creation. This is to prevent the clouding of property titles for many years, since a trust can fail at any time.
To carry out the charitable purpose of a trust rather than having it fail, the courts apply the doctrine of cy pres to modify the trust so that the trust serves a closely related charitable purpose if the trust otherwise becomes impossible, impracticable or illegal to operate under its terms. UTC §413 adds wasteful as a criterion for applying cy pres.
Common cases of failed charitable trusts include the donation of land to a municipality for a specific purpose, such as a school or hospital, which the municipality may not need or have the money to operate. In such cases, the municipality would petition the court to change the trust so that another purpose may be served.
In the past, cy pres has been defined as changing the disposition of a trust's assets or its specified use, while administrative deviation was merely changing the administration of a trust when it became ineffective or uneconomical in carrying out the settlor's intent, or, in some cases, to reduce taxes. However, the comment section of UTC §413 expands the definition of cy pres as applying to both the deposition of the trust's assets and the administration of the trust.
If a trust was created for charitable purposes but the trust document did not specify the charitable purpose, then UTC §405(b) states that the courts may select a charitable purpose that is aligned with the settlor's intent.
Cy pres is sometimes used to modify a trust that specifies beneficiaries according to gender, race, or religion because, as some have argued, it is discriminatory. Other courts simply terminate the discriminatory trust.
A charitable trust is not permitted to have ascertainable beneficiaries, but must be for a charitable benefit. But it's the beneficiaries who enforce the terms of a private trust. And under common law, even the settlor may not have standing to enforce the trust unless he retained an interest in the trust, although UTC §405(c) modifies the common law by allowing the settlor to enforce the terms of the trust, even if he has no remaining interest in it. Nonetheless, in many cases, the settlor is dead. Who, then, enforces the terms of the charitable trust?
Because the charitable trust does not have ascertainable beneficiaries, it is the duty of the attorney general of each state to supervise the administration of the trust, and, if necessary, to bring suit to enforce the terms of the trust. However, because trust supervision does not have priority with attorneys general, courts have allowed interested persons, who have a special interest in the trust because they could be possible beneficiaries, to bring suit for breach of trust or to enforce the fiduciary duty of the trustee.
Charitable trusts, in the form of charitable remainder trusts and charitable lead trusts, can also offer tax benefits. Charitable remainder trusts are split-interest trusts, where the income interest goes to one or more noncharitable beneficiaries, and the remainder interest goes to the charity when the term of the trust ends. A current charitable tax deduction can be claimed for the present value of the remainder interest to the charity.
Sometimes a charitable remainder trust is formed by the charity itself in the form of a pooled income fund, which can accept gifts for many donors, saving them the expense of setting up their own trust.
A charitable lead trust can also be used to lower gift or estate taxes, although, in most cases, it does not provide a current charitable deduction. However, donors can still contribute to a charitable lead trust and lower their taxes on gratuitous transfers even if their AGI limits for charitable deductions has already been exceeded.
Charitable Lead Trusts Draw Renewed Interest - A good article on charitable lead trusts.
Judge Samuel King, Who Challenged Hawaiian Estate, Dies at 94 - a good example of how charitable trusts can go wrong.

References: §405
 §408
 §2
 §409
 §405
 §413
 §413
 §405
 §405