Trusts in trouble

Last week I promised to say a little bit about trusts.  In my classes I describe a trust as "property with a purpose," which may not be the technical legal definition but summarizes the concept in a nutshell. 

Over the weekend the New York Times featured an article on what some see as a growing problem in the charitable trust world:  banks managing the property for charitable purposes that differ from the specific causes supported by the trust's original creators. 

The scenario the article describes goes something like this: 

• Mr. and Mrs. Wealthy-Couple in Omaha want to help their favorite local causes.
  
• Mr. and Mrs. Wealthy-Couple create a charitable trust managed by Local Bank.
• Local Bank gives money to a cowboy museum and other local causes favored by Mr. & Mrs. Wealthy-Couple, who express their wishes to Local Bank officials.
• Mr. & Mrs. Wealthy-Couple die.
• Local Bank gets sold to Huge National Bank.
• Huge National Bank gives the trust money to the East Village Vegans against the War.

There are ways to draft around this problem, the most obvious being to state the purposes with greater specificity from the outset so as to limit the trustee's discretion.  Yet that too has a problem--changing a trust's purpose can be rather difficult, even needing the approval of a judge.  Because it can be equally problematic for a charitable trust to waste a lot of money on a court case so it can avoid funding purposes that are no long relevant, the modern trend has been to give the trustee a fair of legal leeway in determining where the money should go.

We'll talk about the tension between donor control and charitable mission throughout the semester.  For now, here's a blast from the recent past in New York City:

A Matter of Trust: Two Titans of Charity Battle over Millions