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Don Kramer, LL.B.

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Law: Can Donors Enforce Charitable Gift Agreements?

Court Refuses to Apply Uniform Trust Code When Gift Was Not Result of an Express Trust

In a Nutshell

Donors who want to retain the right to enforce the terms of a charitable gift should retain that right in the gift agreement or face the likelihood that they will have no standing to pursue their claims in court. Otherwise, they can only hope that their state's attorney general will enforce the terms of the gift agreement. The problem is, a state-level attorney general is a political animal, often elected by the public, who may have neither the resources nor the inclination to take the donor’s case to court.

In yet another case showing that donors of significant charitable gifts should specifically retain the right to enforce their agreements if they want a say in the ultimate use of the property, the Supreme Court of Wyoming has denied standing to a foundation and an individual donor who wanted to sue to prevent the sale of a ranch given to the University of Wyoming and Colorado State University.

The Court has said that only the state Attorney General has standing to sue, and has refused to apply the more liberal standing provisions of the Uniform Trust Code because the gift was not made in an express trust. ( The Courtenay C. and Lucy Patten Davis Foundation v. Colorado State University Research Foundation, Supreme Ct., WY, No. S-13-0121, 3/4/14.)

In 1997, the Courtenay C. Davis Foundation, which held a 99 percent membership interest in a limited liability company that owned and operated a working cattle ranch, and Amy Davis, who owned the remaining 1 percent interest, gave their interests in the LLC and its operating assets jointly to the foundations of the University of Wyoming and Colorado State University. At the same time they gave a conservation easement to the Nature Conservancy to protect the open space.

The memorandum of agreement with the university foundations provided that the gift was to be used to generate scholarships and internships for students from net income generated by the ranch, and to provide a “real world” working laboratory for students of ranching and resource management. The agreement provided for a seven-year phase one to stabilize operations, and a follow-up seven-year phase two to generate revenue for the schools’ endowments.

The agreement also provided for possible disposition of the property at the end of the fourteen-year operational requirement. The foundations could enter into a joint sale or pursue various methods of separate acquisition if either wanted to own the ranch outright. After the fourteen-year period, the universities decided to sell the property through a sealed bid procedure. The foundation and Davis sued to stop the sale.

When the university foundations moved to dismiss the claim for lack of standing, the Davis plaintiffs amended their complaint to claim that the agreement created an implied charitable trust and that they had standing to enforce the terms of the trust under Wyoming’s version of the Uniform Trust Code. The trial court dismissed their claims, and the Supreme Court has affirmed.

The Supreme Court first considered whether the agreement had established an implied trust for the property. It said implied trusts could be classified as either a constructive trust or a resulting trust. A constructive trust is not really a trust at all, it said, but “an equitable remedy that a court imposes against one who has obtained property by wrongdoing.” A resulting trust is one “imposed by equity when property is transferred under circumstances suggesting that the transferor did not intend for the transferee to have the beneficial interest in the property.”

The court reasoned that the original gift agreement did not create an implied trust. The intent to keep the ranch as open space, it said, was accomplished by the easement to the Nature Conservancy. But it was also clear that the donors did not intend that the university foundations would necessarily hold the property forever. The agreement provided a specific procedure by which they could sell the property.

Following the court’s “longstanding approach” that “no trust is created where the transaction is as consistent with another type of transaction as with that of a trust,” the court found that no trust resulted from the agreement.

It then followed the common law rule that only the attorney general may enforce the terms of a charitable gift unless the donor expressly reserved a property interest in the gift.

It found that the state legislature had expanded the standing to enforce an express trust when it approved the Uniform Trust Code, but had not expanded the right to enforce an outright charitable gift. The Davis plaintiffs argued on the appeal that they had reserved a right to be on the management committee for the property that was created under the original agreement. The court rejected the argument because it was not raised at the trial court level, but also said they had “not articulated how an interest arising from service on the management committee allows them to circumvent the common law rule.”

The Fine Print...

Although this article discusses an aspect of the law of tax-exempt organizations, neither the author nor CharityChannel Press is rendering legal advice. No  attorney-client relationship is formed between the reader and the author or between the reader and CharityChannel Press. A qualified attorney should be consulted on all important questions of law.

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