Enforcement of Charitable Trusts

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

Church Law & Tax Report

Enforcement of Charitable Trusts

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

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.

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