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FLORIDA CHARITABLE TRUSTS: ALTERNATIVE BENEFICIARIES AND CY PRES DOCTRINE

Due to applicable tax exemptions and tax deductions, charitable trusts are a great tool for preserving the value of your property intended for charitable purposes and for reducing taxes payable by your remaining estate (intended for purposes other than charitable ones). Naturally, the main goal when setting up a charitable trust will be the fulfillment of the philanthropic objective of your choice. While the law comes to aid with mechanisms to fill in the blank spaces in the will or trust agreement, well-meant but poorly executed provisions in the documents may defend these mechanisms and obstruct the desired purpose.

Charitable purposes may include relief of poverty; advancement of arts, sciences, education, or religion; promotion of health, governmental, or municipal purposes. Fla. Stat. 736.0405(1).  This list is, of course, non-exhaustive. A specific charitable purpose and beneficiary organization will usually be designated in the document. Even if it is not, the court will select one or more charitable purposes or beneficiaries that will be consistent with the settlor’s original intent, at least to the extent it can be ascertained. Fla. Stat. 736.0405(2). But what if the agreement names a purpose and a beneficiary, but the beneficiary does not exist? Or exists at the time the agreement is made, but ceases to exist before it is supposed to take the bequest? Or what if the stated purpose is impossible to fulfill? In those situations the cy pres doctrine applies to help execute the bequest in accordance with the general spirit of the will or trust agreement.

Based on this doctrine, “[i]f a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful, the court may . . . modify or terminate the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor’s charitable purposes.” Fla. Stat. § 736.0413(1). In SPCA Wildlife Care Center v. Abraham, the court applied this doctrine where the decedent named a non-existent International Wildlife Society as a beneficiary in a “death bed” will. 75 So.3d 1271 (Fla. 4th DCA 2011). In accordance with the cy pres doctrine, the court did not let the bequest fail and go through intestacy succession, but instead ordered the lower court to construe the will to effectuate the testator’s intent. The court stated that from the language of the will and the affidavits of family members and of the attorney who prepared the will, “it appears that the decedent had a general charitable intent for the residue of her testamentary trust to pass to a charitable organization for the benefit of animals.”

In Lewis v. Gaillard, the court ruled that if the named organization ceases to exist, its successor is the proper beneficiary. 56 So. 281, 288 (1911).

It is common for the testators or settlors to provide alternative beneficiaries in the will or trust agreement. This may provide solution in the situations mentioned above, but it may also make the application of the cy press doctrine impossible, creating paradox situations.

In Jewish Guild for the Blind v. First Nat. Bank in St. Petersburg, the testator set up a trust in his will and named a first beneficiary for the entire trust. 226 So.2d 414 (1969). The beneficiary, and later his successor, was required to use the trust assets “‘for the purpose of acquiring or constructing a separate building which will provide proper facilities for the education and recreation of blind children’” within five years. The instrument further provided that if the first beneficiary was to reject the bequest or accept it but fail to use it as provided, the trust would terminate and be paid to a secondary beneficiary for a different charitable purpose. The first beneficiary accepted the bequest, but the trust assets were insufficient for the acquisition or construction of a separate building. Because the first beneficiary was in the process of constructing a building known as the New City Center For The Jewish Guild For The Blind, it asked the court for permission to use the trust assets to buy facilities for third floor of the building, arguing it is in accordance with the testator’s general intent to aid blind children.

The second-named beneficiary filed a document with the court agreeing and consenting to this proposal. Nevertheless, the court ruled that because the testator provided an alternative beneficiary (i.e., the second-named beneficiary) and an alternative purpose for the use of the trust assets in the case the primary purpose cannot be fulfilled, which it could not be, the cy pres doctrine cannot apply.  The testator “anticipated the eventuality that his first choice would not be complied with; and he expressly provided for an alternative use of the trust funds . . . . Under either alternative the dominant intention of the testator can be fulfilled.” The court further explained that three possible scenarios may occur: 1) the first-named beneficiary will be able to comply with the terms of the trust within the five years and so take the bequest; 2) the second-named beneficiary will take the bequest and use it for the second stated purpose; or 3) if the second-named beneficiary rejects its benefits, then the court will be able to apply the cy press doctrine. But until it is clear that none of the provided alternatives will work, this doctrine is inapplicable and the bequest must follow the testator’s expressed intents.

To make sure your legacy will be effectuated as intended, proper attention should be paid to the legal instruments creating it. All possibilities should be taken into consideration.  The foregoing provides a brief overview of the use of the cy pres doctrine.  If you are interested in more information about establishing a charitable trust, please do not hesitate to contact the lawyers at Chepenik Trushin LLP, who are experienced, ready, and willing to help. Bart Chepenik, 305-613-3548, available everyday. Brad Trushin, 305-981-8889.