Charity Governance: What's Trust Law Got to Do with it?
Chicago-Kent Law Review, Vol. 80, p. 641, 2005
47 Pages Posted: 31 Jul 2006
U.S. charities have two main options for their legal form, the nonprofit corporation and the charitable trust. But choice of form is not destiny for charitable organizations: Trust and corporate law standards are substantively identical in a considerable range of circumstances. These include the standards of behavior required by charitable fiduciaries (converging on the corporate standard); the process for modifying an outmoded use of a gift made for a restricted charitable purpose (converging on the trust standard); and the relevant supervisory and regulatory regimes (the same regardless of organizational form). On a few key issues, however, the trust and corporate form have certain irreducible differences. Notably, trust law permits the settlor to assign differing duties to trustees of a trust having multiple trustees (and absolving those trustees not assigned particular duties); by contrast, all directors of a nonprofit corporate board are equally responsible for participating in oversight.
To the extent trust and corporate law remain different and organizational form remains the determinative factor, well counseled charity founders may choose the content of the law that binds them. An important goal of the American Law Institute's project on Principles of the Law of Nonprofit Organizations (for which the author is Reporter) is to further the convergence of legal principles that apply regardless of organizational form.
Keywords: American Law Institute, charity governance, nonprofits, trust law
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