Wills, Trusts, and Estates

Legal Developments

Provisions in Decedent’s Will Could Be Reformed by Recourse Based on Religious Charities’ Extrinsic Evidence

The court noted that “the charities have articulated a valid theory that will support reformation if established by clear and convincing evidence.”

Richard R. Hammar, Attorney, CPA
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Key point. Some courts interpret charitable bequests in a testator's will based on extrinsic evidence outside the four corners of the will itself.

The California Supreme Court ruled that a decedent's will leaving his estate to two religious charities if he and his wife died simultaneously could be reformed by recourse to extrinsic evidence to show that he wanted his estate distributed to the charities even if he survived his wife, so long as the charities could show by "clear and convincing evidence" that this was the decedent's true intent.

In 1984, a 72-year-old male (the "decedent") prepared a "holographic" (i.e., handwritten) will in which he left all of his property to "my beloved wife" who was then 58 years of age. He left to his brother "the sum of one dollar." The will provided that

should my wife and I die at the same moment, my estate is to be equally divided between [two named religious charities]. The will further provided that "I have intentionally omitted all other persons, whether heirs or otherwise, who are not specifically mentioned herein, and I hereby specifically disinherit all persons whomsoever claiming to be, or who may lawfully be determined to be my heirs at law, except as otherwise mentioned in this will. If any heir, devisee or legatee, or any other person or persons, shall either directly or indirectly, seek to invalidate this will, or any part thereof, then I hereby give and bequeath to such person or persons the sum of one dollar ($1.00) and no more, in lieu of any other share or interest in my estate.

The decedent's wife died in July 2002, and the decedent died in 2007, leaving no spouse or children.

The holographic will was admitted to probate. The religious charities named in the will claimed that the estate should be divided between them as the will prescribed. But the decedent's sole surviving heirs claimed that the bequest to the charities was negated by the fact that the couple did not die simultaneously, and therefore the estate had to be distributed to the decedent's heirs pursuant to the state laws of intestacy. The probate court concluded that the will was not ambiguous, and awarded the entire estate to the heirs. A state appeals court affirmed the trial court's ruling. The charities appealed to the state supreme court. Their main argument was that there was ample "extrinsic" evidence (i.e., evidence outside the will itself) that would demonstrate the decedent's intent to leave his estate to the two charities and not to his surviving heirs.

The court acknowledged that California law "allows the admission of extrinsic evidence to establish that a will is ambiguous and to clarify ambiguities in a will." However, California law "does not currently authorize the admission of extrinsic evidence to correct a mistake in a will when the will is unambiguous." The court concluded that "a change in the law is warranted to allow the reformation of an unambiguous will when clear and convincing evidence establishes that the will contains a mistake in the expression of the testator's intent at the time the will was executed and also establishes the testator's actual and specific intent at the time the will was executed." Therefore, the court remanded the case back to the trial court to determine "whether clear and convincing evidence establishes that the decedent intended, at the time he drafted his will, to provide in his will that his estate was to pass to [the religious charities] in the event his wife was not alive at the time the testator died."

The court noted that "the charities have articulated a valid theory that will support reformation if established by clear and convincing evidence. [The charities] contend that the decedent actually intended at the time he wrote his will to provide that his estate would pass to the two charities in the event his wife was not alive to inherit his estate when he died, but that his intent was 'inartfully' expressed in his will and thus there is a mistake in the will that should be reformed to reflect his intent when the will was drafted. Their contention, if proved by clear and convincing evidence, would support reformation of the will to reflect his actual intent."

What this means for churches

This case demonstrates the problems that can arise when an individual seeks to save money by drafting his or her own estate plan without the assistance of an attorney. Sadly, the decedent's estate in this case was substantially depleted by the legal fees expended in the probate court case, and the appeals to a state appeals court and the state supreme court. As a result of the supreme court's ruling, the case goes back to the probate court for the process to start all over again.

Church leaders who encourage members to remember the church in their estate plan should caution them to utilize the services of an estate planning attorney to ensure that their wishes will be honored. In re Estate of Duke, 352 P.3d 863 (Cal. 2016).

Legal Developments

Restrictive Provision in Churches’ Charitable Trust Can Be Expanded to Allow Additional Investments

Case demonstrates that the low rates of return on such investments may enable churches to obtain a court order authorizing a broader range of investment options.

Richard R. Hammar, Attorney, CPA
Bio


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."

In this case, the court noted, the decedent's intent was to provide each church with a principal amount of money from which funds would be generated to assist in the maintenance costs of the physical property of each. The churches sought "limited additional authority regarding the manner in which investments of the principal are administered." They "do not seek to alter the specific charitable purpose or disposition provisions." The court concluded:

[The churches] established that the current investment restrictions have for many consecutive years reduced the income from each trust to essentially negligible amounts. Those restrictions have become impracticable and frustrate each trust's purpose of generating funds to assist in church maintenance. Under analogous circumstances, courts have cautiously exercised their equitable power to permit deviation of investment restrictions … . We deem such relief appropriate here.

What this means for churches

Many church members have left funds in a trust for the perpetual benefit of their church. It is not uncommon for such trusts to restrict investments of trust principal to federally insured bank accounts or government-issued securities. This case demonstrates that the low rates of return on such investments may enable churches to obtain a court order authorizing a broader range of investment options. In some cases, like this one, a court will simply require a church trustee to invest trust funds consistently with the "prudent investor rule."

This rule is recognized in every state, with some variations. According to a commonly cited definition, "trustees must be prudent and vigilant and exercise a sound judgment. They are to observe how persons of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as probable safety of the capital to be invested." In re Estate of Chamberlin, 135 A.D.3d 1052 (N.Y. App. 2016).

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Legal Developments

Woman’s Estate Plan Leaving Funds to Church Can Not Be Subverted by Caregiver’s Undue Influence

Church Law and Tax Report Woman’s Estate Plan Leaving Funds to Church Can Not Be

Church Law and Tax Report

Woman’s Estate Plan Leaving Funds to Church Can Not Be Subverted by Caregiver’s Undue Influence

Key point 4-03. A gift to a church or minister may be challenged on the ground that the recipient unduly influenced the donor into making the gift. There are several factors the courts will consider in deciding whether or not undue influence occurred, including the age and mental health of the donor, and the presence of independent legal advice. Undue influence generally must be proven by “clear and convincing” evidence.

A Florida court ruled that an elderly woman’s estate plan that left her entire estate to her church could not be altered through the undue influence of the woman’s caretaker, who attempted to redirect the estate to herself. An elderly woman (the “decedent”) and her late husband executed a family trust and pour-over wills in 2009, several months before he died. The trust provided that, if the husband died first, then upon his wife’s death, the entire estate would go to their church. When the wife died, the estate was valued at $350,000 consisting of bank accounts. No document existed purporting to take these accounts out of the estate left to the church—until a few days before the wife died.

Mary was the decedent’s neighbor, friend, and health-care surrogate. She had hired her former daughter-in-law to help care for the decedent. In contrast to the disinterested witnesses who testified that the entire estate was intended to go to the church, Mary and her former daughter-in-law testified that the decedent told them she did not want the church to have the money from the credit union accounts. They acknowledged that she never expressed this contrary intention in the presence of other people. They said that the decedent had asked Mary to get a “payable on death” (POD) form from the credit union and fill it out to give Mary 75 percent of the credit union accounts, 10 percent each to her son and daughter, and the remaining 5 percent to her former daughter-in-law. Mary obtained the POD form and completed it in this manner, with the beneficiary information appearing only on the first page of the form. She obtained the decedent’s signature on the second page.

Mary’s former daughter-in-law took the POD form back to the credit union the next day, which was the day the decedent was hospitalized because of her final illness. After the decedent’s death, and about a week after Mary was appointed personal representative of the estate, the credit union disbursed the credit union account funds pursuant to the POD designation.

The church filed an Objection to Inventory and petition to remove Mary as personal representative, arguing that Mary had wrongfully failed to include the credit union accounts in the inventory. The trial court evaluated the credibility of the testimony of Mary and her former daughter-in-law on these points and found it unconvincing. The court found that Mary had used her confidential relationship with the decedent and actively procured the diversion of the decedent’s estate from the church to her and her relatives. As a result of its findings, the court invalidated the POD designation and removed Mary as personal representative, and ordered her and her family to return their distributions to the court. Mary appealed.

Invalidating a POD for undue influence
The appeals court began its opinion by observing that “contrary to Mary’s arguments, Florida law allows a POD designation to be invalidated for undue influence. Florida has a legitimate public policy interest in preventing abuse of fiduciary or confidential relationships … . If a substantial beneficiary under a will occupies a confidential relationship with the testator and is active in procuring the contested will, the presumption of undue influence arises.”

The court concluded:

A POD account, although not in the strictest sense a testamentary device and not subject to the formalities required of wills, functions as a will substitute and partakes of many of the same equitable considerations that apply to testamentary transfers. Florida law and policy against abuse of fiduciary relationships apply to contracts, inter vivos transfers, and testamentary transfers, and are properly applied to determine whether a POD designation has been obtained through undue influence. We affirm the trial court’s conclusions that, on the evidence presented, Mary obtained this POD designation through undue influence, and the gift is void.

Ordering Mary to return funds to the estate
Mary claimed that the trial court had no authority to order her and her family to return the credit union funds to the estate. The appeals court disagreed: “Although the trial court could have exercised discretion to enter a money judgment or provide other remedies, the trial court properly entered an order requiring Mary to return to the estate the amount of money improperly disbursed from the credit union accounts.”

The court added that Mary and her family members would be responsible for returning any interest earned on the accounts, and that any failure to comply with the court’s order would amount to contempt of court, which could result in imprisonment.

What This Means For Churches:

This case illustrates an important point: The intention of long-term and infirm church members to leave some or all of their estate to their church cannot be subverted by caregivers and others who abuse their confidential and fiduciary relationship to unduly influence these donors into redirecting their estate to them. As this case illustrates, the law provides a remedy to unwind such unethical practices. Keul v. Presbyterian Church, 180 So.3d 1074 (Fla. App. 2015).

Legal Developments

Enforcement of Charitable Trusts

Not all beneficiaries have the right to enforce the terms of a charitable trust.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Enforcement of Charitable Trusts

Not all beneficiaries have the right to enforce the terms of a charitable trust.

Richard R. Hammar, J.D., LL.M., CPA

Key point Church board members may be personally liable for diverting designated funds or trust funds to some other purpose.

The Alabama Supreme Court ruled that a church lacked standing to enforce a charitable trust that was created to distribute income to religious and charitable institutions. An elderly man died in 1950 leaving a will that created a charitable trust. The trust provided that, after the payment of nominal sums to family members, the bulk of the trust’s income was to be distributed to local religious and charitable institutions. Fifty years later, a church and school filed a lawsuit seeking to have a court compel the enforcement of the trust. A trial court dismissed the lawsuit on the ground that the church and school lacked “standing” to enforce the trust. On appeal, the state supreme court affirmed the trial court’s decision. It began its opinion by observing that historically only state attorneys general were empowered to enforce charitable trusts. But, this rule resulted in sporadic enforcement due to the other pressing responsibilities of the office. As a result, states began to allow others to enforce charitable trusts:

It must be conceded that throughout the country supervision of the administration of charities has been neglected. The manifold duties of [the attorney general] make readily understandable the fact that such supervision is necessarily sporadic. While public supervision of the administration of charities remains inadequate, a liberal rule as to the standing of a plaintiff to complain about the administration of a charitable trust seems decidedly in the public interest.

The prevailing view of other jurisdictions is that the attorney general does not have exclusive power to enforce a charitable trust and that a … person having a sufficient special interest may also bring an action for this purpose. Beneficiaries of a charitable trust have a right to maintain a suit to enforce the trust or prevent diversion of the funds.

The court ruled, however, that not all beneficiaries have a legal right to enforce the terms of a charitable trust. It drew a distinction between “a person or entity that has a vested or fixed right to receive a benefit from a charitable trust and a person or entity that might merely potentially receive a benefit in the discretion of the trustees,” and concluded that only beneficiaries with a vested or fixed right to receive distributions from a charitable trust have standing to enforce it.

The church and school in this case were mere “potential beneficiaries” who would benefit from the trust only if the trustee selected them out of the large class of religious and charitable institutions, and such an interest was not sufficient to confer standing. Rhone v. Adams, 2007 WL 2966822 (Ala. 2007).

This Recent Development first appeared in Church Law & Tax Report, January/February 2009.

Legal Developments

Wills and Legal Formalities

When drafting a will, consult with an attorney to ensure the document’s validity.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Wills and Legal Formalities

When drafting a will, consult with an attorney to ensure the document’s validity.

Richard R. Hammar, J.D., LL.M., CPA

Key point Wills and other testamentary documents must be drafted and executed in compliance with applicable law to be legally enforceable.

The Virginia Supreme Court ruled that a church member’s will, that left the bulk of her estate to her church, was valid even though the witnesses’ names were printed without signatures. An elderly church member (“Cora”) executed a will naming her church as her primary beneficiary. According to the terms of the will, the church received Cora’s home and several substantial bank accounts. The will was executed in the presence of a notary public who printed the names of three witnesses, without signatures, below Cora’s signature. Attached to the will was a “self-proving affidavit,” which was signed by a notary public and all three witnesses, and which affirmed that Cora signed the will in the presence of the witnesses as her free and voluntary act.

Following Cora’s death, the church submitted her will for probate. However, a court clerk refused to admit the will on the ground that it was not properly witnessed “since where signatures of the witnesses should be, the names of the witnesses are printed.” Cora’s nearest relatives also opposed the admission of the will to probate. One of these relatives was the sole “residuary beneficiary” under the will who would receive Cora’s estate in the event that the will was rejected for probate.

A trial court rejected the will for probate on the basis of the following statute: “No will shall be valid unless it be in writing and signed by the testator … and moreover … the signature shall be made or the will acknowledged by him in the presence of at least two competent witnesses, present at the same time; and such witnesses shall subscribe the will in the presence of the testator, but no form of attestation shall be necessary.” According to the trial court, the witnesses did not “subscribe the will in the presence of the testator” because they failed to sign the will below Nora’s signature. Their printed names without signatures were insufficient.

The state supreme court reversed the trial court’s ruling and ordered the will to be admitted to probate. It acknowledged that the witnesses did not affix their signatures at the end of the will itself, but concluded that their signatures at the end of the self-proving affidavit attached to the end of the will was sufficient. It noted that “the literal meaning of the word ‘subscribe,’ as used in the statute, is ‘to write underneath; sub, under; scribere, to write.'” The court concluded that the witnesses’ signatures at the end of the self-proving affidavit that had been attached to the end of the will satisfied the statute’s requirement that the witnesses “subscribe the will in the presence of the testator.” It observed:

The purpose of the statute in requiring subscription of a will by competent witnesses in the presence of the testator is to prevent fraud, deception, mistake, and the substitution of a surreptitious document. These requirements, however, are not intended to restrain or abridge the power of a testator to dispose of his property. They are intended to guard and protect him in the exercise of that power. The safeguards of the statute are not designed to make the execution of wills a mere trap and pitfall, and their probate a mere game. Additionally, the witnesses’ subscription establishes and proves that the testator’s signature is genuine. Even though the requirements in [the statute] must be strictly followed, the statute must not be construed in a manner that would increase the difficulty of the transaction to such an extent as to practically destroy” an uninformed layperson’s right to dispose of property by will.

Application. It is important that all applicable legal formalities be satisfied in the execution of a will. It is for this reason that church leaders should not rely on will kits and other “homemade” documents in assisting members with their estate plans. The services of an attorney should always be utilized to ensure the validity of the document. Hampton Roads Seventh-Day Adventist Church v. Stevens, 657 S.E.2d 80 (Va. 2008).

This Recent Development first appeared in Church Law & Tax Report, January/February 2009.

Legal Developments

Delegation of Trusts

The decisions of trustees regarding the distribution of trust income or principal ordinarily will be upheld by the courts.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Delegation of Trusts

The decisions of trustees regarding the distribution of trust income or principal ordinarily will be upheld by the courts.

Richard R. Hammar, J.D., LL.M., CPA

Key point. The decisions of trustees regarding the distribution of trust income or principal ordinarily will be upheld by the courts, especially where the trust confers upon them the sole discretion to make such decisions and they act in good faith.

* A California court ruled that a trust that was created by a church member to benefit elderly members of the church did not act improperly in rejecting a request by the church to distribute $300,000. A church member (Ruth) created a trust that directed the trustees to pay her church so much of the income and principal “as is necessary for the benefit of senior citizens, whether to improve the church for their comfort, or to assist programs started through the church for the benefit of senior citizens, or for such other needs of the church as the trustees shall, in their sole discretion, determine. At the time of Ruth’s death, the trust was valued at more than $1 million. The trust named two individuals to serve as co-trustees.

The church asked the trustees to distribute $300,000 from the principal of the trust to help pay the cost of a $3 million remodeling project that had gone several hundred thousand dollars over budget. The church claimed that it would use the $300,000 in accordance with the terms of the trust by paying for things that benefited seniors, such as benches in the reception area and more comfortable seating in the church, a new sound system, brighter lighting, better heating and air conditioning, and a new drive-through area to give seniors better access. However, the church did not give the trustees a breakdown of how the church intended to spend the $300,000. The trustees rejected the church’s request because they believed that it was inconsistent with Ruth’s intent in creating the trust.

The church asked a court to order the trustees to distribute the $300,000. A member of the church and a self-avowed “senior,” testified at a hearing that she was a member of the “Pioneer Club,” which is an organization of church seniors that met twice a month at the church. She testified that the seniors appreciated the new cushioned church pews and improved lighting that were “just so conducive to an elder to be relaxed and enjoy the service.” She also appreciated the improved air conditioning and heating in the new church, as well as the new sound system. Another benefit of the new building was the addition of a ramp from the parking lot to the church.

Another church member prepared a spreadsheet of the costs of the items included in the church remodeling which he believed benefited seniors. Many of these items involved making the church compliant with the American with Disabilities Act. The member concluded that $50,835 of the cost of the reconstruction directly benefited seniors.

A court ruled in favor of the trustees, and denied the church’s request to compel a distribution of $300,000 from the trust principal. The court based its ruling on two considerations. First, the trust gave the trustees “sole discretion” to determine any distributions of principal or income from the trust. The trust did not give the church, as beneficiary, “an unfettered right to demand distributions of principal.”

Second, while there was evidence that the church remodeling project had some benefits to seniors, “there was no evidence that the benefits to seniors had a value of $300,000—the amount the church was requesting. In fact, [a church member] testified that he created a spread sheet analyzing what parts of the construction project favored seniors. He concluded that $50,835 was spent on items that particularly benefited seniors. Since the trustees had discretion to invade principal as necessary to assist the church in benefiting seniors, and there was no evidence that seniors would derive a $300,000 benefit from the reconstruction project, the trustees had a rational basis to conclude that a $300,000 principal distribution was not necessary to benefit seniors.”

The court conceded that “we can imagine situations where the trustees would not be fulfilling their fiduciary duties by refusing to invade principal,” but concluded that “the evidence does not support such a conclusion in this case.” Gordon v. Holy Redeemer Church, 2006 WL 1330916 (Cal. App. 2006).

Legal Developments

Wills and Estates

An Indiana court addressed the important question of whether a designated gift to charity is legally enforceable.

Richard R. Hammar, Attorney, CPA
Bio

• Key point 6-07.05. Church board members may be personally liable for diverting designated funds or trust funds to some other purpose.
Church Officers,Directors, and Trustees

* An Indiana court addressed the important question of whether a designated gift to charity is legally enforceable, and under the facts presented, concluded that a designated gift was not enforceable by an heir of the original donor. In 1950, a woman executed a last will and testament that bequeathed $250,000 to a hospital for the construction of a chapel. Following the donor's death, a chapel was constructed. It contained a plaque noting it was a memorial to the donor. In 2003, the hospital decided that it would be necessary to expand its facilities, and that such expansion would require demolition of the chapel. In 2004, the hospital took steps to dismantle the chapel, including removing the stained glass windows. A descendant of the donor asked a court to block the demolition of the chapel. A trial court issued an order permanently enjoining the hospital from destroying the chapel, and ordering it to restore the chapel to its original condition. The hospital appealed.

The appeals court began its opinion by making a distinction between 'an absolute gift and one in trust to a charitable institution. In the former, the property becomes an asset of the corporation to be used in such manner as the corporation deemed best, while in the latter, the property is held by the corporation, not as its own, but in the capacity as a trustee.' The court noted that the question of whether the language of a will or other document 'was intended to create a charitable trust, binding on the recipient, has been litigated in a number of cases.' In answering this question, a court must 'examine carefully all the clauses of the instrument and the situation of the parties in order to decide whether the phrases used were intended to be binding upon the charity … or whether it was to be an absolute owner with only moral obligations by reason of the suggestions or requests from the donor as to the use of the property given.'

The court stressed that 'the mere statement in a will of the purpose for which the property is to be used does not create a trust.' On the other hand, 'as a general proposition charitable trusts are favored by the law.'

Did the donor in this case intend to make an outright gift to the hospital, subject to its full discretion and control? Or did she intend to create a perpetual charitable trust that was beyond the power of the hospital to change? The court concluded that there was no question that the donor intended to make a charitable gift of some kind to the hospital. The court referred to three prior cases:

Case 1. A gift to the Bible Institute Colportage Association of Chicago 'to be used in the publication and dissemination of evangelical Christian literature in harmony with its Articles of Incorporation' created a charitable trust that was for the benefit of those who might receive the literature and was binding on the Association's successor as trustee of the bequeathed assets. One of the court's judges filed a concurring opinion in which he noted that the court's decision seemed to conflict with the established rule that a mere statement in a will of an intended purpose for a gift to charity does not convert the gift into a charitable trust. Bible Institute Colportage Association v. St. Joseph Bank & Trust Co., 75 N.E.2d 666 (Ind. App. 1947).

Case 2. A donor's will bequeathed assets to the Methodist Church 'to the Northwestern Branch of the Women's Foreign Missionary Society to be used for China, India and Africa.' A court concluded that this was 'a gift absolute without restrictions as to use' and did not create a charitable trust. Stockton v. Northwestern Branch of Women's Foreign Missionary Society of the Methodist Episcopal Church, 133 N.E.2d 877 (Ind. App. 1956).

Case 3. A donor's will bequeathed his house to his church 'to be used as a parsonage.' An Ohio court concluded that this language did not transfer the home in trust to the church for charitable purposes, and the church received unrestricted title to the property and could sell it rather than using it as a parsonage. First Presbyterian Church v. Tarr, 26 N.E.2d 597 (Ohio 1939).

The court concluded that the first case mentioned above was not controlling, since the donor in that case 'had bequeathed funds that had not been used for their stated purpose and funds remained for that use, and could continue being used in that way indefinitely or until the funds ran out.' In the case before it, however, the donor's purpose (funding a chapel) 'was met when the chapel was constructed and a plaque memorializing the donor was placed there.' Further, 'the general rule is that the mere statement of the purpose for a charitable gift does not transform it into a charitable trust.' Beyond that, the donor's will 'says nothing as to how long the memorial had to exist in order for it to be valid, or what would happen should [the hospital] no longer want the chapel before the end of its useful life.' In further support of its conclusion that the donor had not created a perpetual charitable trust, the court noted that the donor's will had been drafted by an experienced attorney who knew how to create a perpetual trust if this had been the donor's desire.

The donor's heir claimed that whenever a designated gift is made to a charity, the charity holds the property subject to a 'condition subsequent,' meaning that the gift is revoked if the charity uses the property for some other purpose. Once again, the court disagreed: 'Although no definite or particular form of expression is absolutely essential to the creation of a condition subsequent, it must be manifest from the terms of the will that the gift was made on condition and the absence of the words usually used for such purpose is significant. Conditions subsequent are not favored in law and always receive a strict construction. A condition subsequent will not be implied from a mere declaration in the deed that the gift is made for a special purpose.' The court quoted from a leading treatise on the law of trusts: 'The clear majority rule is that nothing short of express provisions for forfeiture and either a reverter, a gift over or a right to retake the property in the donor or his heirs would enable a donor to effectively impose a condition subsequent.' The court noted that the donor's will in this case 'contained nothing to indicate the required duration of the [chapel] ….The will also contains no reverter language to indicate what should happen to the chapel, or the funds used to build it, if the hospital no longer wanted the chapel on its premises ….When the language of an instrument does not clearly indicate the grantor's intention that the property is to revert to him in the event it is diverted from the declared use, the instrument does not operate as a restraint upon alienation of the property, but merely expresses the grantor's confidence that the grantee will use the property so far as may be reasonable and practicable to effect the purpose of the grant.'

The court concluded by noting that the donor's gift in fact had been used to construct a chapel that had been used continuously for nearly 50 years, and that 'although charitable gifts should be encouraged so far as possible, charities themselves should not be bound to one particular use of bequeathed property for multiple generations unless they are on clear notice that such is a requirement of the bequest.'


Application . This case is important for the following reasons:

1. The case represents one of the most extended discussions by any court of the enforceability of designated gifts to charity.

2. The court agreed that donors can donate funds or property to charity for a specific purpose, and obligate the charity to use the donated funds or property for the specified purpose perpetually. However, such a result will not be implied or inferred, and 'the mere statement in a will of the purpose for which the property is to be used does not create a trust.'

3. Wills and trusts containing designated gifts to charity that are drafted by an experienced attorney will be construed strictly against any 'charitable trust' obligating the charity to use the gift for the specified purpose perpetually. Such a trust must be clearly expressed in the will or trust or it will be assumed that no such trust was intended.

4. The court's reference to prior cases addressing the same issue is helpful.

5. A designated gift that does not specify the duration of the required use is more likely to be construed as an outright gift to the charity rather than a charitable trust.

6. 'Conditions subsequent' are not favored in law and always receive a strict construction. A condition subsequent 'will not be implied from a mere declaration in the [deed or will] that the gift is made for a special purpose.' St. Mary's Medical Center v. McCarthy, 829 N.E.2d 1068 (Ind. App. 2005).

Copyright © 1994 – 2006 Christianity Today International.All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, A publication of Christianity Today International, 465 Gundersen Drive, Carol Stream, IL 60188.

Legal Developments

Unsigned Wills

What happens when an unsigned will is found after the writer’s death?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-09-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• Key point: An unsigned copy of a will leaving an entire estate to a church may be admitted to probate if the original cannot be found and the church can overcome the presumption that the deceased revoked the will prior to death.

• What happens when a church member dies and an unsigned will is found leaving his entire estate to two churches? Do the churches have any right to the estate, or must it pass to surviving relatives? That was the issue addressed by an Iowa court in a recent case. A church member executed wills in 1959, 1973, 1974, 1983, and 1986. His final will, in 1986, left his entire estate to two churches with which he had been associated throughout his life. Following his death in 1990, the only will that could be found was an unsigned copy of the 1986 will in his safety deposit box. The church member was not survived by his wife, and he had no children. Various nephews and nieces claimed that the unsigned will could not be admitted to probate, and that the entire estate should pass to them. The court acknowledged that when only an unsigned will is found a presumption arises that the deceased revoked the will prior to death. However, it pointed out that this presumption can be overcome by clear and convincing evidence that the deceased did not destroy the will with an intent to revoke it. The court concluded that two churches produced sufficient evidence to rebut the presumption that the will had been revoked. This evidence included the following: (1) the deceased told several people in the years preceding his death that he did not like his relatives and they would not receive any portion of his estate; (2) the deceased had little if any contact over the years with any of his relatives; (3) the deceased had close and meaningful associations with the two churches (he and his wife had been married in one, and they attended both for many years); (4) in none of the deceased’s prior wills did he leave any portion of his estate to his relatives; (5) there was no direct evidence that the deceased in fact destroyed his original 1986 will or ever expressed a desire to revoke it; and (6) the deceased never spoke to his attorney about revoking the 1986 will. The court also noted that if the deceased had revoked his 1986 will he either would have destroyed the unsigned copy or not left it with his other valuables in a safety deposit box. Matter of Estate of Wiarda, 508 N.W.2d 740 (Iowa App. 1993).

© Copyright 1994, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 0594

Legal Developments

Recovery of Assets for an Estate

Court rejects church’s attempt to recover assets for an estate.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-07-01 Recent Developments

Richard R. Hammar, J.D., LL.M., CPA

• An Ohio appeals court rejected a church’s attempt to recover assets for an estate of which it was a beneficiary. An individual (the “testator”) executed a will on February 7, 1990, leaving all his bank accounts to a church. On March 5, 1990, the testator and a friend went to the testator’s bank and, while there, the testator had all of his accounts and certificates of deposit placed in the joint names of himself and the friend as joint tenants with right of survivorship. The friend had not contributed to any of these funds and did not thereafter contribute anything to them. The testator died on August 29, 1990. On several occasions prior to the testator’s death, the friend withdrew varying sums of money from the joint and survivorship funds totalling approximately $118,000. Within hours after the testator’s death, the friend closed the last survivorship account by withdrawing the remaining balance. The church filed a complaint in the probate court alleging that the testator’s friend was in possession of assets belonging to the testator’s estate. The church asked the court to order the friend to return to the estate all monies he had taken from the testator’s bank accounts and certificates of deposit. The probate court refused to grant the church’s request. It found that there was clear and convincing evidence that the testator intended on March 5, 1990, to make his friend a co-owner of the accounts. The court found “particularly persuasive” the testimony of the branch manager at the bank on the issue of the intent of the testator on March 5, 1990, when the joint accounts were created.” This decision was appealed by the church to a state appeals court, which affirmed the probate court’s decision. St. James Episcopal Church v. Handorf, 1991 WL 261823 (Ohio App. 1991 unpublished).

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0492

Legal Developments

Man’s Attempt to Give Money to Minister Challenged in Court

A Missouri court ruled on the matter.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-09-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• A husband’s attempt to give more than half of his estate to his minister was challenged in court. A Missouri couple was married in 1967, and they signed wills and a “postnuptial agreement” specifying that they would not “give away any of their property during their marriage.” Shortly before his death from kidney failure in 1987, the husband withdrew $26,000 from an investment account and gave it to the minister of his church. This transaction was never revealed to his wife. Following the husband’s death, his widow began investigating his affairs, and discovered the $26,000 gift to the minister. When she asked the minister about the gift, he replied “that is between him and God. If you knew about the money, it would only hurt you, and you don’t need to be hurt any more.” The widow continued to investigate her husband’s affairs, and later discovered that her husband had given the $26,000 to the minister, and that the minister used the money to buy 10 acres of land and a house. In exchange for the $26,000, the minister had agreed to pay the husband a monthly income “for life” of $266, and to “say some good words” about the husband at his funeral. When asked why the husband gave him the money, the minister later explained, “Because he wanted to, I feel. He wanted to help me out. He wanted me to go into full-time ministry, and he thought I had a message. And he said I need to be preaching it.” The widow filed a lawsuit seeking to recover the $26,000 on the ground that the transfer was a “fraudulent conveyance” in violation of her marital rights under state law. A jury agreed with her, and ordered the land and home sold and the proceeds returned to the widow. The minister appealed this verdict. A state appeals court agreed with the trial court’s decision. The court noted that a court can revoke a gift made by a husband to a third party with an intent to deprive his widow of her full legal rights in his estate. Factors indicating an intent to defraud a spouse include (1) a transfer of property for less than market value, (2) a reservation of some control by the husband over the property that is transferred, (3) the property transferred is a substantial portion of the estate, (4) a lack of open and frank disclosure by the husband to the surviving spouse about the transfer, and (5) the property is transferred by the spouse “in contemplation of death.” While not all of these factors are necessary for a fraudulent intent to be established, the court concluded that they all were present in this case. The property was conveyed to the minister for little if any value; the husband retained control over the property by requiring a monthly income of $266; the $26,000 transferred to the minister represented more than one-half of the estate; the husband purposely concealed the transfer from his wife; and, the husband made the gift at a time when he was dying of kidney failure. Accordingly, the appeals court agreed with the trial court, and ordered the home and 10 acres sold and the proceeds paid to the widow. In the Matter of the Estate of Froman, 803 S.W.2d 176 (Mo. App. 1991).

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0591

Legal Developments

Death of Beneficiaries

What happens when a beneficiary in a will dies before the donor?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-09-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• A Missouri court ruled that a gift to a radio evangelist contained in the will of a donor “lapsed” when the evangelist died prior to the donor. The will contained an article specifying that the donor’s entire estate, after providing for the donor’s father for life, was to be distributed to a designated radio evangelist. The will provided that “I request that said [evangelist] shall use the money so received by him in the promotion and furtherance of his radio ministry and the spreading of the Gospel as he may see fit.” The donor’s father, and the radio evangelist, both died before the donor. At the donor’s death, his estate was claimed by the evangelist’s estate, what remained of the radio ministry, and the donor’s heirs. The evangelist’s radio ministry claimed that the donor intended to leave his estate to the evangelist in his “representative capacity to use for religious purposes and not in his individual capacity for his own personal use.” Accordingly, the gift was not affected by the evangelist’s death. The court rejected this argument, noting that the will merely requested that the funds be used to promote the radio ministry. It observed that the donor “did not manifest an intention to impose a legal obligation on the [evangelist] to use the property for religious purposes, but rather the language of the will allowed him to either apply the residue of [the donor’s] estate to the designated religious purposes or keep it for his own benefit.” The evangelist’s estate claimed that if the gift was to the evangelist in his individual capacity (and not as a representative of the radio ministry), then his estate was entitled to the property. In rejecting this claim, the court observed: “It is the rule at common law that a gift in trust lapses upon the death of the beneficiary prior to the death of the testator. In Missouri, if the named [beneficiary] in a will is not a relative by consanguinity [i.e., by blood], the common law rule that the gift lapses is still effective.” Accordingly, the court concluded that the donor’s heirs were the rightful owners of his estate. In the Matter of the Estate of McReynolds, 800 S.W.2d 798 (Mo. App. 1990).

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0591

Legal Developments

Deductability of Testamentary Gifts

The IRS national office recently ruled on this issue.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-09-01 Recent Developments

Charitable Contributions

Richard R. Hammar, J.D., LL.M., CPA

• Does a testamentary gift left to a church in a decedent’s will, with the instruction that masses are to be said for the benefit of the deceased and other individuals, qualify for a charitable contribution deduction for estate tax purposes? Yes, ruled the IRS national office. The deceased’s will contained the following article:

Two thousand Dollars ($2,000) shall be paid to [the church] to say Masses for the … souls [of five named deceased individuals] at the payment of three dollars ($3.00) paid for each Mass; the balance of the money left from the sale of the said [property] after these bequests are paid out, shall be paid to [the church] to say Masses for my soul … at the payment of three dollars ($3.00) paid for each Mass. [The church] shall use the money exclusively for Masses for my soul.

It is the policy of the church and of the religious order staffing the church to honor all requests for masses for the repose of the souls of the deceased regardless of whether a donation accompanies the request. In addition, the church is prohibited from “selling” masses by the regulations of its parent church. All funds donated to the church as mass stipends go into the general fund of the church and are applied to church functions. No funds are paid to individual priests or anyone else for the saying of masses. In upholding the deductibility of such payments as charitable contributions, the IRS observed:

In any event, the property in question apparently has passed to the church, and has become part of the general funds of church. No part of the property has been or will be transferred to any individual member of the religious order. Therefore, the amount of the bequest is deductible from decedent’s estate as a [charitable contribution] described in section 2055(a) of the Code …. A bequest by the decedent to his church, accompanied by an instruction that masses are to be said for the benefit of the decedent and other individuals, qualifies as a deductible bequest for purposes of section 2055(a) of the Internal Revenue Code. Private Letter Ruling 9119006.

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m08 m80 c0591

Legal Developments

Court Settles Debate Over Woman’s Last Will and Testament

The woman’s family and her church both claimed a certificate of deposit.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-03-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• A Tennessee appeals court was asked whether a last will and testament left a $100,000 certificate of deposit to her church, or to her relatives. The will specified that “I have not made a devise or bequest to any of my relatives in this will because they are all financially secure in their own right and do not need any little thing I have to offer.” The will also stated: “I direct that my executor shall allow the members of my family to select such item or items from my clothing, jewelry, household goods, personal effects and all other tangible personal property not otherwise specifically bequeathed, except securities and cash on hand or on deposit, as each of them may desire or want …. In the event that there is any of said personal property remaining, my executor is directed to sell the remaining property at public or private sale, as deemed most appropriate by my executor, and the proceeds therefrom shall be paid to the Eastminster Presbyterian Church.” At the time of her death, the woman owned a $100,000 certificate of deposit (in her name only) at a local bank. The church, and the woman’s relatives, both claimed to be entitled to the certificate of deposit on the basis of these provisions in the will. A trial court agreed with the church, and the relatives appealed. The state appeals court ruled that the relatives were entitled to the certificate of deposit. The court observed that the woman’s heirs were allowed to select items of “clothing, jewelry, household goods, personal effects and all other tangible personal property not otherwise specifically bequeathed, except securities and cash.” The only benefit the church received under the will was the proceeds from the sale of items other than securities or cash that the heirs did not select. Since the certificate of deposit was part of the “securities and cash” of the woman’s estate, the church had no claim to it under the will. In re Estate of Jackson, 793 S.W.2d 259 (Tenn. App. 1990).

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0291

Legal Developments

Family Challenges Woman’s Last Will and Testament

The court upheld her gift to her minister.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-03-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• A Louisiana appeals court ruled that a last will and testament that left the bulk of an elderly woman’s estate to her minister was valid. Relatives challenged the gift to the minister on the basis of two considerations. First, they claimed that the woman (who was 89 at the time of her death, and 84 when she executed the will) was not of sound mind. Second, they relied on a state law prohibiting clergy who “attend a person during the sickness of which he dies” from receiving any portion of that person’s estate. The relatives argued that the woman had died of arteriosclerosis, which had been diagnosed ten years prior to her death, and that the minister who received her estate was her attending minister at the time her arteriosclerosis was first diagnosed. A trial court rejected both contentions, and the relatives appealed. A state appeals court also ruled in favor of the minister. With regard to the woman’s mental capacity, the court observed that persons are presumed to have mental capacity unless the contrary can be demonstrated by “clear and convincing evidence.” Such evidence was not present in this case. The court acknowledged that there was evidence of “some confusion and combativeness on the part of the [woman] but did not indicate that she totally lacked the capacity to execute a will ….” With regard to the state law prohibiting clergy from receiving deathbed gifts from persons that they “professionally attend,” the court observed that the minister who received the estate was never the woman’s minister, but rather was a family friend. Further, the court noted that the relatives’ interpretation of the state law was unreasonable, for it “would have the practical effect of precluding a minister from receiving a legacy once a long-time illness is diagnosed. It would not be reasonable to hold that [the woman] could not give a legacy to her friend … because she was diagnosed as having arteriosclerosis [10 years earlier] and he was her minister at that time.” Succession of Easterly, 563 So.2d 1006 (La. App. 1990).

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0291

Legal Developments

Invalidation of Charitable Gifts Made Prior to Death

A Florida law allowing heirs to challenge wills was recently repealed.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-01-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• The Florida Supreme Court struck down a state law that permitted certain heirs to challenge gifts made to churches and other charities in a will executed within 6 months of a person’s death. Prior to this ruling, Florida law, like the laws of a small and dwindling number of states, permitted a spouse or “lineal descendent” to challenge a will of a decedent who died within 6 months after executing a will leaving all or part of his or her estate to a religious or charitable organization. An elderly Florida resident executed a will on May 5, 1986, leaving most of her estate to a charity. The woman’s will left only a token gift to the her sole suriving daughter since the daughter “has not shown or indicated the slightest affection or gratitude to me” and since “I have contributed substantially during my life for her education and subsequent monies I have been required to expend primarily due to her promiscuous type of life.” The woman died two months later, survived only by her daughter. The daughter immediately challenged her mother’s will on the basis of the state law permitting lineal descendants to challenge charitable gifts made in their parents’ wills if executed within 6 months of death. The charity opposed the daughter’s action on the ground that the state law was violated the constitutional guaranty of the “equal protection of the laws.” A trial court agreed with the charity, but a state appeals court agreed with the daughter. The case was appealed to the state supreme court, which ruled that the state law was unconstitutional. The court began its opinion by observing that statutes restricting charitable gifts originated in feudal England “as part of the struggle for power and wealth between the king and the organized church.” As feudalism declined, the justification for these laws became the protection of surviving family members against disinheritance caused by the undue influence of religious organizations. In rejecting this rationale, the court observed that “it is unreasonable to presume, as the statute seems to do, that all lineal descendants are dependents, in need, or are not otherwise provided for.” The court emphasized that state law has ample protections against undue influence and fraud that can be used by disinherited family members without the need for a specific statute. Further, the court observed that “the charitable gift restriction fails to protect against windfalls by lineal descendants who have had no contact with the decedent but who may benefit from the avoidance of a charitable gift.” Since the statute was not “reasonably necessary to accomplish the asserted state goals,” it violated the state constitution. Further, the statute violated the federal and state constitutional protections of the “equal protection of the laws,” since it treated gifts made to charitable and religious organizations within 6 months of death less favorably than other gifts without any rational justification. The fact that a gift is made within 6 months of death is not in itself sufficient proof of undue influence, noted the court, since most gifts made within 6 months of death are not the product of undue influence and some gifts made more than 6 months prior to death are. Accordingly, the 6-month rule was arbitrary and treated charities less favorably than other citizens or organizations without adequate justification. One dissenting justice cautioned that the law might still serve a valuable purpose in appropriate cases: “Surely one would have to say that, had the [decedent] succumbed to a televion evangelist’s call to be with the Lord by delivering her property to his church and thus leave unprotected a physically handicapped child, a rationale basis for the statute would exist.” In conclusion, note that the court observed that there are only three other states that have laws invalidating charitable gifts made within a specified time prior to death—Georgia, Idaho, and Mississippi. Shriners Hospital v. Zrillic, 563 So.2d 64 (Fla. 1990).

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0191

Legal Developments

Wills, Trusts and Estates

Church Law and Tax 1990-09-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1990-09-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• Can a provision in a decedent’s will leaving the bulk of his estate to a church “solely for the building of a new church” be honored if the church has no plans to build a new facility? That was the issue before the Iowa Supreme Court in an important case. An elderly man drafted a will in 1971 that left most of his estate “in trust” to his sisters, and upon the death of the surviving sister, to a local Congregational church with the stipulation that the funds be used “solely for the building of a new church.” The man died in 1981, and his surviving sister died in 1988. Since the Congregational church had no plans to build a new sanctuary, it asked a local court to interpret the will to permit the church to use the trust fund not only for construction of a new facility but also “for the remodeling, improvement, or expansion of the existing church facilities” and for the purchase of real estate that may be needed for future church construction. The church also asked the court for permission to use income from the trust fund for any purposes that the church board wanted. The state attorney general, pursuant to state law, reviewed the church’s petition and asked the court to grant the church’s requests. However, a number of heirs opposed the church’s position, and insisted that the decedent’s will was clear, and that the church was attempting to use the trust funds “for purposes other than building a new church.” They asked the court to distribute the trust fund to the decedent’s lawful heirs. The local court agreed with the church on the ground that “gifts to charitable uses and purposes are highly favored in law and will be most liberally construed to make effectual the intended purpose of the donor.” The trial court’s ruling was appealed by the heirs, and the state supreme court agreed with the trial court and ruled in favor of the church. The supreme court began its opinion by observing that “it is contrary to the public policy of this state to indulge in strained construction of the provisions of a will in order to seek out and discover a basis for avoiding the primary purpose of the [decedent] to bestow a charitable trust.” The court emphasized that the “cy pres” doctrine clearly required it to rule in favor of the church. The “cy pres” doctrine (which has been adopted by most states) provides that “if property is given in trust to be applied to a particular charitable purpose, and it is or becomes impossible or impracticable or illegal to carry out the particular purpose, and if the [decedent] manifested a more general intention to devote the property to charitable purposes, the trust will not fail but the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the [decedent].” Applying the cy pres rule, the court concluded: “The will gave the property in trust for a particular charitable purpose, the building of a new church. The evidence clearly indicated that it was impractical to carry out this particular purpose. Furthermore, the [decedent] did not provide that the trust should terminate if the purpose failed. A trust is not forfeited when it becomes impossible to carry out its specific purpose, and there is no forfeiture or reversion clause.” The court concluded that the trial court’s decision to permit the church to use the trust fund for the remodeling, improvement, or expansion of the existing church facilities “falls within the [decedent’s] general charitable intention.” Accordingly, the trial court’s decision represented a proper application of the cy pres rule. Churches leaders should be aware of the cy pres rule, for it often has resulted in gifts to churches being upheld despite the contention of heirs that the precise purpose of the gift is not possible. Matter of Trust of Rothrock, 452 N.W.2d 403 (Iowa 1990).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 m35 c0690

Legal Developments

Wills, Trusts and Estates – Part 2

Church Law and Tax 1990-05-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1990-05-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• An Oregon state court ruled that the personal representatives of an estate improperly distributed estate assets to a minister. A decedent’s will left a portion of his estate to the “Eastside Community Church” of a designated address in Portland, Oregon. However, since the church occupying the designated address was actually known as the “Eastside Free Methodist Church,” the personal representatives of the estate concluded that the will was “ambiguous” and they accordingly decided to divide the estate equally between the Eastside Free Methodist Church and the minister who served the church in the 1970’s when the church was known as “Eastside Community Church” (despite the fact that the will was signed three years after the previous minister had left the church). The church challenged this distribution in court. A trial court ruled that the will was not ambiguous, and that “Eastside Community Church” clearly referred to “Eastside Free Methodist Church.” It concluded that the personal representatives had improperly distributed the estate. A state appeals court agreed, noting that “the personal representatives’ understanding of the meaning of the will is preposterous. The designated beneficiary is a church at a specified location, which the decedent had attended, even if it was under a different name. There is no intelligible way to read the will as intending to benefit an individual who had ceased being the minister at that church three years before the will was executed.” Burris v. Eastside Free Methodist Church, 784 P.2d 109 (Or. App. 1989).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0390

Legal Developments

Wills, Trusts and Estates – Part 1

Church Law and Tax 1990-05-01 Recent Developments Wills, Trusts and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1990-05-01 Recent Developments

Wills, Trusts and Estates

Richard R. Hammar, J.D., LL.M., CPA

• An Ohio state appeals court was asked to determine whether an ambiguous clause in a decedent’s last will and testament left her estate to a local Methodist church. The will, which was executed in 1951, conveyed a large portion of the estate to a local charity with the stipulation that the funds be used to “build.” If the charity did not use the funds to “build” within 10 years of receipt, then the funds (with interest) were to be distributed to a local Methodist church. Following the decedent’s death in 1984, the charity accepted its share of the estate, and proposed to use the funds to remodel its present structure rather than build a new one. A trial judge ruled that the term “build” (as contained in the will) meant either to build a new building or remodel the current facility. The church appealed this decision, and a state appeals court ruled that “simply put, ‘build’ means [to] build.” The court continued, “the word ‘build’ is defined in Webster’s New World Dictionary as ‘to make by putting together materials, to construct.’ The words ‘remodel’ and ‘refurbish’ are not synonyms for the work ‘build.'” Accordingly, the appeals court concluded that if the charity did not use the funds to build a new facility, then the funds had to be transferred to the church. Riegel v. United Methodist Church (Ohio App. unpublished opinion 1989).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0390

Legal Developments

Wills, Trusts and Estates – Part 1

Church Law and Tax 1989-07-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1989-07-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• A Louisiana appeals court upheld the validity of a will that left a decedent’s estate to her minister. Here are the facts. The decedent died in 1986 at the age of 86. As early as 1979, she began exhibiting behavior which led her doctor to conclude that she was suffering from Alzheimer’s disease. By 1981, she had trouble recognizing close friends and relatives, her conversations became repetitive, and she became prone to emotional outbursts and temper tantrums. In 1979, a minister began transporting the decedent to and from church. By 1982, she offered to give her property to him (she made similar offers to others who did favors for her). In 1983, the minister took the decedent to an attorney’s office in order to have a will drafted leaving him her estate. The attorney had known the decedent for many years, and had drafted a previous will for her in 1975. He questioned her as to whether she understood that she was revoking her previous will and was leaving her entire estate to the minister. At one point he stated, “this [minister] is not a member of your family, do you understand that you have a right to give your possessions to whomever you wish, but you’re under no threat or anything?” The decedent became upset with the attorney’s questions, and the will was prepared and signed. Following the decedent’s death in 1986, the minister introduced the will to probate. A relative of the decedent challenged the will on the following grounds: (1) the decedent lacked the capacity to make a will (in 1983) because of mental incompetence; and (2) a state law invalidated will provisions leaving a gift to a minister if the will was drafted during the decedent’s “last illness” and the minister “attended” the decedent during that illness. The state appeals court ruled in favor of the minister. It observed that a will may successfully be challenged on the basis of mental incompetence only if “clear and convincing evidence” of incompetency exists. While acknowledging that some evidence of incompetency existed in this case, it failed to amount to “clear and convincing evidence.” The court was especially impressed with the fact that the decedent’s attorney had testified that he felt that she was competent at the time she executed her will in 1983. The decedent certainly was becoming more forgetful by 1983, the court acknowledged, but this fact alone did not constitute clear and convincing evidence of incompetency. Similarly, the court rejected the claim that state law prohibited the gift to the minister, since the will had not been executed during the decedent’s “last illness.” Between 1983 and shortly before her death in 1986, the decedent was not chronically ill. However, had the decedent “made the will during her final hospitalization a different result might obtain.” This case reveals the difficulty that is typically encountered in attempting to invalidate a will on the basis of mental incompetency or “undue influence.” The “clear and convincing evidence” standard is recognized by many states, and often bars relatives from successfully challenging a will leaving all or part of an estate to a minister (or more commonly to a church or other charity). Succession of Mack, 535 So.2d 461 (La. App. 1988).

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0489

Legal Developments

Wills, Trusts and Estates – Part 2

Church Law and Tax 1989-07-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1989-07-01 Recent Developments

Wills, Trusts, and Estates

Richard R. Hammar, J.D., LL.M., CPA

• The Supreme Court of Georgia ruled that a family could not privately agree to the settlement of an estate, that originally had included a charitable trust, without the participation of a state officer. A decedent left a will which distributed the bulk of his $25 million estate to a charitable trust for the purpose feeding starving people and “giving Bibles to those who need to know Jesus Christ.” The will was submitted to probate, but various relatives filed challenges. Eventually, family members agreed to a private settlement of the estate which left a much smaller portion of the estate to a charitable trust and more of the estate to the family. The state director of revenue objected to the settlement, citing a state law specifying that no court can modify or terminate a charitable trust without his participation. The family maintained that the revenue director’s participation was not necessary since no modification or termination of a trust was involved. They pointed out that the will of the decedent was never admitted to probate, and accordingly the charitable trust that was established in the will was never established. The state supreme court disagreed with the family, and ordered the state revenue director’s participation in the proceeding. It concluded that the case “does involve the modification of a charitable trust, notwithstanding the fact that the trust is one which a deceased individual sought to establish in an unprobated will.” The court based its decision in part on the state policy of according the revenue director broad powers in supervising charitable trusts. This case illustrates that in some cases the provisions of a will, though unequivocally leaving a gift to charity, can be subverted by a private agreement among the family. This principle often comes as a surprise to churches and other charities. Collins v. Citizens & Southern Trust Co., 373 S.E.2d 612 (Ga. 1988).

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0489

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