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How the cy pres doctrine affects charitable trusts

A charitable trust is a special kind of trust that allows you to donate significant funds to a charity without diminishing your estate. Not only does the charity receive the benefits of the trust, but you and your heirs also receive significant tax benefits. You, as the trustor or creator of the trust, get to choose which charity or charities you want to name in the trust. But what happens if the charity becomes defunct? Nevada courts may then use something called a cy pres doctrine.

When it becomes impossible, impracticable, or even illegal to carry out the purpose of a charitable trust, a court may apply the cy pres doctrine rather than let the trust fail. Cy pres is a French term that means "so near" or "as near as possible." The cy pres doctrine means that a court can substitute another charity whose purpose is closely related or similar to the charity that the trustor originally chose. Basically, the theory is that courts have the authority to revise a trust in order to carry out the charitable intent of the trustor. 

For example, let's say that you bequeathed your estate to a nonprofit organization for children with cerebral palsy. At the time of your death, the organization no longer exists. The court, in applying the cy pres doctrine, could find that your trust was intended not for that particular organization, but instead for the benefit of children with cerebral palsy. The court may then award your legacy to a similar cerebral palsy organization as a trustee.

One important consideration is that Nevada is one of the few states that have either rejected or have never applied this doctrine. Thus, in order for the cy pres doctrine to apply, a charitable trust must contain a dissolution provision. The provision might state that the trust assets can be distributed for other similar charitable purposes in case that charity dissolves.

If you would like to establish a charitable trust, contact an attorney who has experience in estate planning. The attorney can help you determine the best type of charitable trust for you.

Source: IRS.gov, "The Cy Pres Doctrine: State Law and Dissolution of Charities," Accessed May 26, 2015

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