The Doctrine of Cy Pres (“Cy Pres” or “the doctrine” for short) is derived from French, meaning "as near as possible" (aussi pres que possible, in modern French). The doctrine, as it relates to charitable giving, is particularly applicable in trusts and estates law. In the U.S., a person writing his or her will is called a “testator” and a person writing his or her trust is called a "settlor" or a "trustor." When this person elects for his or her assets to be used for a particular charitable purpose, and that purpose becomes impossible, impracticable, or illegal to carry out, then Cy Pres allows the court to direct the assets to a charitable purpose that comes as close as possible to the person’s original intent, so the distribution does not fail. In plain language, if a donation cannot be used for the exact purpose intended by the donor, then Cy Pres tells us to look for the closest possible alternative.
How Cy Pres Is Used
For example, if a person writes in her trust that when she dies, her property should be distributed to ABC animal shelter to support abandoned dogs, what happens if ABC animal shelter is no longer in operation at the time of her death? The doctrine of Cy Pres would permit a court to decide that XYZ animal shelter, which also takes in abandoned dogs, could still be an appropriate recipient of that property.
The doctrine as applied in U.S. law (generally speaking) has its limitations. If an individual’s intent is not stated in a manner that allows a court to reasonably assign a new purpose for the charitable distribution while still honoring the individual’s original intent, then Cy Pres would likely not be helpful, or even applicable. Said a different way, if an individual’s original intent is so specific that a reasonable replacement cannot be found, then that specific provision in the trust or will would likely fail. In fact, in such a scenario, the court will assume that the individual’s use of specific language is an indication of his or her preference for the distribution to fail, rather than have the assets distributed in a different way.
For example, in one court case, an individual (the testator) bequeathed part of his estate to a specific hospital for the benefit of tubercular children. When he died, the specific hospital no longer existed, and his heirs argued that the gift to the hospital failed, so therefore, they were entitled to the entire estate. The court in that case applied the Cy Pres doctrine and determined that, although the specific hospital no longer existed, the more general intent of the testator was to help children with tuberculosis. Since the charitable purpose itself existed, even though the originally chosen hospital itself did not, the gift did not fail, and thus could be distributed to another hospital with a similar purpose of treating tubercular children. However, had the document strictly stated that the gift would go to the specific hospital without any additional general charitable purpose, the court likely would not have applied the Cy Pres doctrine and would have ruled differently.
In order to overcome this limitation and to ensure more certainty in the process, many jurisdictions have imposed a requirement that the trust instrument contain provisions clearly stating that the trustor has a general intent to benefit charitable purposes, and not merely a specific intent to benefit a particular institution. Often, legal practitioners will include provisions allowing the trustee of the trust (i.e., the manager of the trust assets) to find a replacement purpose for the assets (within specific guidelines) in case the trustor's original intent becomes impossible or impracticable, thereby eliminating the need for court intervention.
The Origins of the Doctrine of Cy Pres
The doctrine itself (or something similar) can be traced as far back as Roman law in the third century and is assumed to have been introduced into English law during medieval times. The doctrine became especially popular during the time of King Henry VIII, when numerous monasteries were dissolved as a result of Catholic masses becoming illegal. New purposes had to be found for hundreds of charitable trusts. Today, Cy Pres is part of the American legal system as it pertains to charitable giving and some class actions. Many other countries have incorporated a similar concept within their laws.
Cy Pres as It Applies to Equivalency Determination
As explained in our prior post on dissolution, public charities and their foreign equivalents must be required — either by applicable law or by their governing documents — to distribute any remaining assets on dissolution either for charitable purposes or to the government for public purposes. The U.S. Internal Revenue Service (IRS)(PDF) has advised that assets must be distributed in one of the following ways:
- For charitable purposes (or to another recognized charity);
- For purposes identical to those of the organization (assuming that the organization itself has exclusively charitable purposes); or,
- To a governmental entity exclusively for public purposes.
The above purposes are known as "exempt purposes."
The IRS has specifically noted (PDF) that, in the U.S., the Cy Pres doctrine may be applied to meet the dissolution requirement in states where the doctrine is recognized: "When state law satisfies the [dissolution requirement], it is not necessary to require an organization to amend its articles of incorporation or organizing document, … in order to satisfy the organizational test for qualification as an exempt organization described in IRC 501(c)(3) where all the other requirements for exemption are met."
This guidance is instructive because it tells us that the IRS presumes that purposes that are "as close as possible" to the original purpose would themselves have to be charitable. For this reason, if a non-U.S. charity's governing documents contain dissolution language requiring that its assets be used either for its own purposes or for purposes as close as possible to such purposes, then such language would appear to satisfy the dissolution requirement. This is in contrast to language requiring that assets be used for "similar" purposes, which theoretically could be similar but not so close as to be charitable.
For more information on Cy Pres and dissolution clauses, we recommend the following resources:
- Internal Revenue Service: Charity - Required Provisions for Organizing Documents
- Organizational Test – IRC 501(c)(3) (PDF), IRS EO CPE Text 2004
- Internal Revenue Service: Suggested Language for Corporations and Associations
- Cy Pres Doctrine, NEO Law Group
- The Cy Pres Doctrine: State Law and Dissolution of Charities (PDF), Internal Revenue Service (1981)
- Required Provisions for Organizing Documents – Operation by State Law, Internal Revenue Service
- Changing Donor-Imposed Restrictions: Cy Pres and Equitable Deviation (PDF), The New York Community Trust (2013)
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.