Trust litigation can be a complex and emotionally charged area of law. While many people are familiar with the concept of trusts in the context of estate planning, the role of trusts in charitable donations is less commonly understood. Especially when nonprofits become embroiled in trust litigation and disputes, these situations raise unique legal questions that can easily lead to courtroom battles. One such question is, Can a trust make a charitable donation?
“While trusts can definitely make charitable donations, the process can quickly become a battleground when ambiguities in the trust document, resentment over the value of the donation, or disputes over the trustee’s actions arise,” said Ali L. Nicolette, an Associate at Gokal Law Group who has experience administering appeals of social services and class action litigation for disabled clients and received recognition for her extensive pro-bono advocacy work. Nicolette also served as a Fellow for Disability Civil Rights, focusing on Medicaid class action litigation. “When these conflicts involve nonprofit organizations, they not only risk delaying vital funding but can even threaten to revoke the intended gift altogether. If you’re facing contested donations from a trust, expert legal representation is essential to protect your organization’s interests and ensure the donor’s wishes are honored.”
Legal disputes involving charitable donations made by trusts are more common than you might think, but you don’t have to let these disputes get in the way of your endowment. Our firm supports nonprofits in navigating trust litigation.
The Basics: Can a Trust Make a Charitable Donation?
In short, a trust can absolutely make charitable donations.
Trusts are legal arrangements where a grantor (also known as the settlor) places assets under the control of a trustee, who is tasked with managing and distributing those assets according to the terms of the trust, which dictate the extent to which such donations can be made.
Trusts can be structured to benefit a variety of parties, including individuals, organizations, or charitable causes.
However, when it comes to charitable donations made by a trust, the matter can sometimes become contentious. Beneficiaries may disagree with the trustee’s decisions, the validity of the donation itself, or the amount, especially if they feel entitled to the money being donated.
Can a Charity Be a Beneficiary of a Trust?
A beneficiary can be any person or entity someone who creates a trust wants to leave money or assets to, which can include charities. This allowance is essential to understand because it’s at the heart of understanding whether or not a trust can make charitable donations. When a trust makes donations to a charity, it is often because the charity is designated a beneficiary.
“I often tell clients that while trusts can be powerful tools for charitable giving, they also create unique challenges. When there is a disconnect between heirs and the trust’s intent, these issues can snowball. Trust litigation, especially when nonprofits are involved, is not just about legal technicalities; it’s about honoring the grantor’s wishes and ensuring the charity gets the funding they were promised and deserve,” said Nicolette.
Why Do Charitable Donations Made By Trusts Get Contested?
Even though trusts can make charitable donations, several situations can arise that cause this gift to be contested. Here are some of the most common circumstances that lead to disputes and litigation.
Ambiguity in the Trust Document
One of the most common sources of disputes in trust litigation is ambiguity in the trust document. If the terms of the trust aren’t clear about whether donations to charitable organizations are allowed, beneficiaries or other interested parties may question the validity of a charitable gift.
For example, suppose the trust doesn’t explicitly mention the possibility of charitable donations, but the trustee makes a donation anyway. In this situation, some beneficiaries may contest it, claiming it’s outside the scope of the trust.
In these cases, courts may need to interpret the intent of the trust, which could involve examining the grantor’s other statements, financial records, and any patterns in their charitable giving to determine if a donation was consistent with their wishes.
Disagreements Over Charity Selection
A trust may designate specific charities to receive donations, but what happens if a trustee selects a charity not explicitly mentioned in the trust? A beneficiary might argue that the trustee overstepped their bounds by donating to an organization that wasn’t originally designated.
Alternatively, if the charity has changed its mission or focus over time, beneficiaries may argue that the donation no longer aligns with the original intent of the trust.
Imagine a donor establishes a trust to support local schools, but the trustee makes a donation to a national nonprofit organization with a different focus. There may be a dispute over whether this donation aligns with the donor’s original charitable intent.
On the other hand, if the donor clearly expressed that there was a specific charity they wanted to donate to because they were passionate about this cause, and there is a record of this desire or witnesses to these discussions, a trust litigation attorney could argue that testamentary intent existed and they were within their rights to make this donation.
Trustee Mismanagement
Trustees have a fiduciary duty to act in the best interests of the beneficiaries and the trust’s purpose. If a trustee makes a charitable donation that seems excessive or inappropriate, beneficiaries may file a claim for breach of fiduciary duty.
For instance, if the trustee donates a large portion of the trust’s assets to a charity without consulting beneficiaries, those beneficiaries might argue that the trustee is mismanaging the trust. Conflicts of interest can also constitute a breach of fiduciary duty and warrant litigation.
“Mismanagement claims can also arise if the trustee makes a donation that depletes the trust’s assets in a way that harms beneficiaries or if the trustee makes a donation that trust terms don’t authorize. If the beneficiaries rely on the trust for their financial support, a large charitable gift could be viewed as detrimental,” said Nicolette.
Related Article: A Trust Attorney’s Guide: The Penalty for Breaching Fiduciary Duty
Change in Circumstances or the Charity’s Status
Another reason for charitable donation disputes is a change in circumstances. If a charity that was originally designated in the trust no longer exists, has changed its mission, or is no longer able to fulfill its intended purpose, a trustee may need to redirect the donation.
This could lead to disputes if beneficiaries feel that the trustee is acting outside the spirit of the trust or the scope of their authority. Alternatively, the trustee may have to decide whether to distribute the funds to a similar organization.
Disputes Over the Value of the Donation
The value of the donation itself could also become a point of contention. If the trust’s assets are meant to be divided among beneficiaries, a large charitable donation could reduce the amount they receive. If beneficiaries feel that the donation was too large, unnecessary, or inconsistent with the grantor’s wishes, they may contest the donation in court.
However, if a nonprofit can prove that the trust clearly instructs that this donation amount be made or that the trustee expressed a desire to support their cause, whether through witnesses or even written communications, this could enable attorneys to defend the donation.
Are Disgruntled Heirs Contesting a Charitable Donation Made to Your Nonprofit by a Trust? We Can Help Defend it.
So, can a trust make a charitable donation? Yes, if the trust terms dictate that a trust can or is intended to make charitable donations, a trust can make charitable donations. But this does not mean that things will always go smoothly. When disgruntled heirs challenge a charitable donation to your nonprofit organization, at best, it can delay how long it takes to receive this gift, which can significantly impede your day-to-day operations by disrupting funding and cash flow. At worst, it can result in losing this funding altogether without expert representation.
Schedule a consultation to work with premier nonprofit trust litigation lawyers. Whether you want to streamline this process through alternative means like mediation or protect your funding from heirs who are trying to steal the entire gift, we can help.
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