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Today’s class

Today’s class. Charitable trusts Supervision of charitable trusts. Charitable trusts v. private trusts, p.751. For the benefit of a an ascertainable beneficiary. For the benefit of a charitable purpose. Claflin doctrine Deviation. Cy pres doctrine Deviation. Beneficiaries.

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Today’s class

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  1. Today’s class • Charitable trusts • Supervision of charitable trusts

  2. Charitable trusts v.private trusts, p.751 For the benefit of a an ascertainable beneficiary. For the benefit of a charitable purpose. • Claflin doctrine • Deviation • Cy pres doctrine • Deviation Beneficiaries State Attorney General Exempt from RAP and certain taxes.

  3. Supervision of charitable trusts • While the fiduciary duties of trustees are the same for charitable trusts as for private trusts, enforcement of those duties differs • With private trusts, the beneficiaries can take trustees to court for misconduct • But charitable trusts don’t have ascertainable beneficiaries. As a result, the law traditionally has empowered state attorneys general to police the trustees of charitable trusts.

  4. Supervision of charitable trusts • As the readings indicate, however, state attorneys general often are not sufficiently effective enforcers (note 2, pages 785-786) • Their charitable trust divisions typically are underfunded, and their own political interests may conflict with the interests of the beneficiaries—usually there is little political gain from focusing on charitable trust enforcement, or the political benefits may not serve the trust’s interests, as with the Hershey trust

  5. Supervision of charitable trusts • Because of the deficiencies of enforcement by state attorneys general, the law is becoming more willing to allow private enforcement • Herzog, p. 776, reflects the traditional rule. Unless the donor/settlor retains an interest in a gift/trust (i.e., a reversionary interest), no standing to enforce the gift/trust. (Note the drafting lesson here.) • Fear of undue harassment of trustees by settlors and a draining of charitable dollars into litigation costs. • Smithers, p. 776, reflects the modern trend, as does UTC § 405(c)

  6. Smithers v. St. Luke’s-Roosevelt Hospital Center Smithers v. St. Luke’s-Roosevelt Hospital Center,723 N.Y.S.2d 426 (App. Div. 2001), p. 776 Smithers finds that Hospital has “not lived up to my letter of intent” and decides not to complete gift. Hospital announces plan to move the Center into a hospital ward. Mrs. Smithers demands an accounting. Hospital acknowledges misappropriation of funds. Smithers announces $10M gift for alcoholism treatment center. 1973 1998 1983 1971 1978 1995 After first $1M installment, Hospital purchases a mansion on the Upper East Side to house the Smithers Center. Smithers agrees to complete gift after Hospital’s promise to adhere to terms is recorded in writing. AG negotiates agreement with Hospital. Unsatisfied, Mrs. Smithers sues on behalf of Mr. Smithers’ estate. Does Ms. Smithers have standing to sue on behalf of the donor’s estate?

  7. Supervision of charitable trusts • The Smitherscourt allowed standing “in the circumstances here present” (p. 776). What factors were important? • Egregious and ongoing misconduct by the hospital • The attorney general (AG) learned of the misconduct only through Mrs. Smithers’ vigilance • The AG was not representing the trust adequately • Mrs. Smithers’ motivation was to vindicate her husband’s vision, not for pecuniary gain • UTC § 405(c) provides for settlor standing generally, and NY appears to as well.

  8. The sweetest place on earth:Hershey’s kiss-off, p. 788 Governor signs amendment to prudent investor statute, directed at the Hershey trust, that limits investment discretion in charitable trusts. Trustees and AG meet to discuss sale plan. State AG urges diversification of trust assets (41% invested in Hershey stock). AG seeks preliminary injunction against sale. July 2002 Sept. 2002 Dec. 2001 Aug. 2002 Nov. 2002 Wall Street Journal breaks news of trustees’ plan to sell Hershey stock. Trial court grants preliminary injunction. Trustees meet to consider bids (WWY $12.5B). Trustees give up; injunction upheld.

  9. The Hershey Foundation: Stock Price Analysis Hershey Stock Price Movements Market Control Trustee Control Agency Costs Market Control Agency Costs Trustee Control Trustee Control Trustee Control Source: Jonathan Klick and Robert H. Sitkoff, Agency Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey’s Kiss-Off, 108 Colum. L. Rev. 749 (2008)

  10. U.S. Grant-Making Foundations (p. 801)

  11. U.S. University Endowments (p. 802)

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