An organization called a charity is usually a charitable or public trust. They are created to benefit the public or a specific group.
In Texas a charitable trust is created by Property Code Sec. 123.001, et seq. Unless statutes provide otherwise, no special formalities are required for the establishment of a charitable trust. No particular words are required. Not even the words trust or trustee need to be used. Charitable trusts are generally established under testamentary dispositions.
Capacity To Receive And Hold Trust Property
The capacity to receive and hold trust property differs in various jurisdictions. State law must be examined in order to ascertain the possible existence of any statutory restriction.
Neither the rule against perpetuities nor the doctrine of illegal restraint against alienation is applicable in connection with charitable trusts. In Texas if the trustee appointed in the will dies or fails to act, the Attorney General must agree to the new trustee.
Capacity To Dispose Of Trust Property
The capacity to dispose of trust property varies in accordance with the jurisdiction so state law must be examined. First, obtain a copy of the trust agreement to ascertain the wishes of the trustee. If the trust tries to accomplish a purpose not explicitly set forth in the trust, the state attorney general may step in and set aside the transaction.
The general rule is that the donor must have expressly authorized any sale or encumbrance of the property. In the absence of any power to dispose of trust property and also in the absence of any trustor's prohibition, judicial proceedings need to be instituted to obtain judicial approval of the transaction. The attorney general or representative of the state and the public will be either a proper party or an indispensable party to such a lawsuit, depending upon the state statute.
Cy Pres Doctrine
If the specific purpose of a charitable trust becomes infeasible, a court may reform the trust under the equitable doctrine of cy pres, Old French for "as near as possible". The court will determine the settlor's primary purpose and then formulate an alternative use to another charitable beneficiary whose work approximates, as closely as possible, the settlor's primary purpose. For example, a trust to treat children with whooping cough and diphtheria could be reformed to a trust for the March of Dimes since the trustor's primary purpose was to benefit sick children. The cy pres doctrine applies to outright gifts as well as trusts. Some states have a cy pres perpetuities reform statute so that if a will or trust violates the rule against perpetuities, the instrument will be reformed to carry out the settlor's general intent so far as possible.