What is the Cy Pres Doctrine?

Many estate plans include provisions for charity, whether in the form of a financial amount designated for the decedent’s favorite charities (a pecuniary bequest) or a specific asset or dollar amount left in trust to provide for a charity. If the charity no longer exists, or it no longer serves the purpose that the decedent wanted to support, what happens to that charitable gift or trust? In these situations, the legal principle of cy pres appears.

In Michigan, at common law, the cy pres doctrine is used to permit a court to modify or terminate a charitable trust and thus direct the charitable trust’s property to a new, related charitable purpose when the original charitable purpose becomes impossible, unlawful or impracticable to achieve. In effect, a judge redirects the use of the assets that were pledged to the trust creator’s original charitable purpose or finds a new charity that serves the purpose or constituency close to what the former charity served. This legal doctrine was first recognized in Michigan one hundred years ago.

The purpose of the cy pres doctrine is to ensure that the trust property continues to serve the trust creator’s original charitable intent, rather than to allow the trust to fail to carry out that charitable intent. However, before the cy pres doctrine is invoked by a court, the judge must first determine if the trust’s creator had a general charitable intent to devote the trust property to charitable purposes, even if that intended purpose is frustrated, or a specific charitable purpose when the cy pres doctrine is not available to find a new charitable purpose of the dedicated funds. Cy pres will apply when there is a general charitable purpose, to redirect the charitable bequest or charitable trust. If the decedent’s expressed a specific charitable purpose that can no longer be fulfilled, then the charitable bequest, or trust, fails and will not be carried out.

This cy pres doctrine is reflected in Michigan’s Trust Code. That statute provides that if a trust’s particular charitable purpose becomes unlawful, impracticable, or impossible to achieve, and no alternative ‘taker’ is named or provided for in the trust instrument, or the judge finds that the trust’s creator had a general (rather than a specific) charitable intent, then the trust will not fail, and the trust property will not revert to the trust creator or to the creator’s successors in interest, e.g., family members. Instead, the judge can apply the cy pres doctrine to modify or terminate the trust by directing that the trust property be applied or distributed in a manner that is, in the judge’s opinion, consistent with the trust creator’s original intent. [MCL 700.7413(1).] In effect, this Trust Code provision applies a presumption of trust creator’s charitable intent, rather than requiring some affirmative evidence of that charitable intent.

Michigan’s cy pres statute indicates that a judge cannot apply the cy pres doctrine if the trust instrument provides for an alternative ‘taker’ if the original charity, or its charitable purpose, is frustrated, as the presence of an alternate ‘taker’ is evidence of a specific charitable intent by the decedent. By identifying an alternate recipient in a Will or trust tied to the charitable bequest, it is presumed that the decedent contemplated that the selected charity might no longer exist, or the charity’s purpose had changed. The statute further provides that if the terms of a trust results in a distribution to a noncharitable beneficiary ‘taker’, that trust provision will prevail over the judge’s cy pres power to modify or terminate the trust if at that time the trust property would either revert by the trust’s terms to a living trust creator, or less than 50 years have passed since the trust’s creation.

A recent Michigan example of the application of the cy pres doctrine was a 2022 federal court case that dealt with a deed of trust that established the City of Grand Haven’s Duncan Park. A ‘reverter’ clause was part of the donor’s deed of trust that created the public park. That transfer deed also contained some conditional administration responsibilities. The City of Grand Haven later reformed some of those park administrative provisions by amending a city ordinance that governed the Park. The federal court held that the deed’s ‘reverter’ clause was not triggered when the City’s amended its ordinance, and even if the deed’s ‘reverter’ clause had been activated, the cy pres doctrine would still have applied to prevent the property’s return to its donor (or the donor’s successors in interest).

Another recent court decision that gained some national notoriety was the Dartmouth College’s 2020 decision to close the College’s Hanover Country Club. Robert Keeler, a 1936 graduate of Dartmouth, who died in 2002 at the age of eighty-eight, bequeathed to Dartmouth College money to be used for the “sole purpose of upgrading and maintaining its golf course” with the intent that alumni could return and use the golf course. No surprise, Dartmouth accepted Mr. Keeler’s charitable bequest. Today, that bequest would have a value of about $3.8 million. After its acceptance of the charitable bequest, Dartmouth asked for additional flexibility in how it used this gift. Mr. Keeler’s family denied that request and responded that any money in the charitable fund set aside for the golf course’s maintenance that was not used to maintain or upgrade the course needed to be sent to the nonprofit Robert T. Keeler Foundation which supports children of need. The Keeler family’s position was made clear in a 2005 Statement of Understanding. Dartmouth Collete closed the golf course in 2020 when it stated that it could no longer afford to maintain the golf course, for context at a time when Dartmouth’s endowment fund exceeded $8 billion! Dartmouth refused to return the funds to the Keeler Foundation as directed by the Keeler family. In court, Mr. Keeler’s family members claimed that the cy pres doctrine should not be applied because there was no charitable purpose close as possible to Mr. Keeler’s original intent – to maintain and upgrade Dartmouth’s golf course. Dartmouth argued that Mr. Keeler’s gifted funds could be used to support the Dartmouth’s varsity golf teams and other related golf activities at the campus. The Court sided with Dartmouth, without ever examining Dartmouth’s claims that it was ‘unable to financially keep the golf course going,’ even with the funds provided in Mr. Keeler’s charitable bequest. [Dartmouth’s annual operating budget exceeds $1 billion.]

When an individual establishes a charitable trust or makes a charitable bequest, it is important to distinguish between their general charitable intent, which allows a court to apply the cy pres doctrine when there is a future change in the charity’s circumstances, or the named charity disappears, or alternatively articulate a specific charitable intent, or purpose, for the charitable gift, which may prevent the judge applying the cy pres doctrine. This specific intent can be exemplified by the trust instrument identifying alternate ‘takers in default’ if the charitable purpose is later frustrated, or by including a statement of specific intent, or that it is a material purpose of the trust that the donor wants his or her charitable gift to be applied only for one specific purpose and for no other, and that the trust (or charitable bequest) will fail if that purpose becomes impossible to fulfill.

For example, a trust provision makes a large specific bequest to a charitable trust that is to be used to support a rural hospital. e.g., an endowment, yet that hospital no longer exists due to a lack of government funding. If the trust creator adds to the hospital’s charitable bequest the statement ‘and no other use is permitted,’ those words indicate a specific intent that will prevent the application of the cy pres doctrine.

Judges tend to find the cy pres doctrine appropriate in situations that tend, with hindsight, to challenge credulity like the Dartmouth College case. To implement the donor’s intent, especially if it is a specific intent to benefit only one charity, or for only one specific charitable purpose, a trust instrument or gift agreement needs to make that intent abundantly clear to prevent application of cy pres doctrine.