The charitable trust doctrine requires that a gift accepted by a charitable corporation must only be used for the expressly declared charitable purposes of the donee corporation at the time of the acceptance, even if the corporation changes its purpose, transfers those assets or dissolves. Such restriction is imposed notwithstanding the fact that the donor did not expressly place any restrictions on the gift. Accordingly, if a charitable corporation amends its charitable purposes, gifts received pre-amendment may be used only to further the original charitable purposes. Pre-amendment gifts may not be used to further the new charitable purposes if such use is not in furtherance of the original charitable purposes.
The charitable trust doctrine may apply not only to gifts received by the charitable corporation but also to revenues generated by the corporation (e.g., earned income). The rationale for this expansive view of the doctrine is that (i) it may be impossible to separate out donations and contributions from other revenues, and (ii) such revenues may have only been derived from the "base capital" created by the donated assets.
The expressly declared charitable purposes of a charitable corporation are first evidenced by its articles of incorporation and other formal manifestations of its declared purposes. Pacific Home v. County of Los Angeles, 41 Cal.2d 844 (1953). They may also be evidenced by oral and informal declarations of the corporation's charitable purposes. Holt v. College of Osteopathic Physicians and Surgeons, 61 Cal.2d 750 (1964). Moreover, such purposes may be deduced from the corporation's dominant activities and its representations to tax authorities and the public. Queen of Angels Hospital v. Younger, 66 Cal.App.3d. 359 (1977).
The exception to the general rule of the charitable trust doctrine applies where the charitable purpose has become illegal, impossible or impracticable. In such case, the cy pres doctrine requires that the gift accepted to further the original charitable purpose be used to further a charitable purpose that is as near as possible to the original charitable purpose.
Click here for the Robert A. Katz article "Let Charitable Directors Direct: Why Trust Law Should Not Curb Board Discretion Over a Charitable Corporation's Mission and Unrestricted Assets." 80 Chicago-Kent Law Review (Spring 2005). See pages 701-703 for a description of the charitable trust doctrine.