This proceeding for settlement of a final trust accounting presents a question of construction occasioned by the bankruptcy of a charitable remainderman designated by the donee of a power of appointment.
The donor of the power, Mr. AK, died March 3, 1931 leaving a 1927 will which was probated in this court. His will provided that the net estate be divided into three portions and placed in trust, each part to furnish income to one of his three children. Upon the death of each child, the remainder interest in his or her trust was to be distributed by valid and absolute disposition by will of such child and in default of such exercise of the power, as a part of the estate of such child in accordance with the statutes of descent and distribution of the State of New York.
One of the children thus benefited was Dr. K. His will, which was duly admitted to probate in New York County following his death on March 2, 1940, directed that the trust fund established for him under his father’s will be placed in further trust to pay income to his wife, BK, and that upon her death, the corpus be equally divided between his niece, CV, “to her own sole use, benefit or be hoof, forever” and XYZ Hospital, or its successor or successors, “to its sole use, benefit and be hoof, absolutely and forever.”
BK died on April 10, 1976, at which time the charitable remainderman, by then known by the name LL Memorial Hospital, was an operating hospital. Shortly thereafter, in October of the same year, LL Memorial filed a voluntary petition under Chapter XI of the Bankruptcy Law. Thereafter, the corporation was adjudicated a bankrupt.
UM, executrix of the estate of BK, contends that the remainder gift to the hospital lapsed under these circumstances and is properly payable to her testate as sole distributee in intestacy in accordance with the asserted testamentary intent both of AK and of Dr. K. The Attorney General of the State of New York, appearing in his capacity as statutory representative of charitable interests, agrees that the gift failed but argues for an application of the cy pres power to preserve the gift for a similar eleemosynary purpose. Mr. S, who serves as trustee in bankruptcy for the hospital, maintains that as LL Memorial was a functioning voluntary hospital upon the termination of the preceding life income interest, the gift vested absolutely in it and is not subject to divestiture merely because the trustee failed to make immediate payment.
The intended remainderman, XYZ Hospital, renamed LL Memorial Hospital, though adjudicated as bankrupt, remains extant. However, the bare legal existence of a charitable corporation to which a testamentary disposition is made does not ensure entitlement to receipt of the gift in its favor; on the contrary, the cessation of its benevolent functions, whether or not accompanied by bankruptcy, has invariably been held to defeat its claim to the disposition notwithstanding continued corporate existence whether the winding down occurred before the death of the testator, in the case of an immediate outright gift.
The trustee in bankruptcy seeks to distinguish this body of law on the ground that the institution herein was still performing its customary patient services at the time the gift became payable upon the death of the life income beneficiary. Had the testamentary trustee made prompt distribution, no question would have arisen as to the hospital’s qualification to receive the funds. Accordingly, it argues, the dilatoriness of the fiduciary should not be permitted to have the effect of causing the hospital’s indefeasibly vested gift to be diverted to another recipient.
This line of reasoning is wide of the mark. As a non-contingent gift the enjoyment of which was merely postponed to let in an intervening life income interest, the gift to XYZ Hospital actually vested before it became payable–upon the death of Dr. K, the donee of the power. But that fact has no relevance to whether payment should now be directed to be made to the trustee in bankruptcy; as is evident from the line of authority mentioned above, termination of its benevolent services causes the loss of a charity’s right to receive an absolute disposition or continued income, as the case may be, despite the prior vesting of the bequest or devise. Charitable gifts by will, being for public purposes, are impressed with a public trust imposed by the charter of each particular entity even if no express trust was created by the donor. Thus it is, for example, that upon the dissolution of a charitable membership corporation which holds a testamentary fund to furnish income to itself in perpetuity, the fund may be ordered paid under the cy pres power to another entity furthering similar benevolent purposes rather than distributed among the membership.
Thus, the court concludes that the gift was for the objects of the corporation and not to the corporation itself. While the delay in payment over of the hospital’s intended half share of the trust corpus is unfortunate, the court cannot ignore the greatly changed circumstances which presently exist.
It remains to be determined whether the gift in question is subject to the cy pres power or passes to the estate of the donee’s widow by intestacy.
Here there is no express divesting condition and no gift over of any description. Though XYZ Hospital was the only intended recipient of a charitable disposition, there was no language in the will indicative that testator’s charitable intent was so strictly limited to it that he would have preferred a partial intestacy to the exercise of cy pres on behalf of a similar institution.
The executrix of the estate of Dr. K’s widow argues that the cy pres doctrine has no proper application here because the will of AK, the donor of the power, provided that the trust remainder was to be distributed as part of his son’s estate as if he had died intestate in the event of his default to make a valid and absolute disposition of the funds. The court, however, adjudges that the exercise of the power by the donee was both valid and absolute and that the gift over to the donee’s intestate distributees in default of its exercise has not been activated. Once a legacy vests upon the death of the testator, there is no lapse on the basis of what follows later.
Accordingly, the court holds that the remainder gift intended for XYZ Hospital under article Fourth of the will of Dr K, deceased, pursuant to a power of appointment granted him under the will of his father AK, deceased, is a valid bequest which has not lapsed but which should be applied under the cy pres power to a similar charitable use by reason of the cessation of the intended beneficiary’s charitable operations.
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