Wills and Estates

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

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.'

. 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).

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