Key point 6-07.03. Church board members have a fiduciary duty to use reasonable care in the discharge of their duties, and they may be personally liable for damages resulting from their failure to do so.
A New York appeals court ruled that a provision in a charitable trust for the benefit of three churches that restricted investment of trust funds to insured bank accounts and government securities could be expanded to allow other investments offering the potential for a greater rate of return. A church member died in 1999, and his will made bequests to, among many others, three churches in the amounts of $217,000; $460,000; and $260,000. The will directed each church to hold the funds in trust, invest only in insured bank accounts and government securities, and use the net income for maintenance of the physical property of each church. Because the return on investments in insured bank accounts and government securities has been so low for many years, the churches asked a court to amend the current investment restrictions and authorize them to invest in accordance with the Prudent Investor Act, which would allow investment in stocks and bonds. A trial court denied the churches' request, and the churches appealed.
An appeals court noted that a state law provides that "whenever it appears to [a court] that circumstances have so changed since the execution of an instrument making a disposition for religious … purposes as to render impracticable or impossible a literal compliance with the terms of such disposition, the court may, on application … make an order or decree directing that such disposition be administered and applied in such a manner as in the judgment of the court will most effectively accomplish its general purposes, free from any specific restriction, limitation or direction contained therein."