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Court Discusses Decedent’s Endowment Fund


The wife of a chemical engineering professor left a piece of real property which comprised a substantial portion of her estate worth around $2,800,000 to a polytechnic university. She also left the sum of $2,000,000 as a charitable endowment gift to the same polytechnic university provided that it shall be used as an award to the Distinguished Professorship of Chemical Engineering. A New York Probate Lawyer said the rest of her estate was given as a gift to be used to fund graduate research fellowships or an endowment fund. According to her last will and testament, these cash sums should be restricted to the uses she had enumerated and trusts should be created and the income from the trusts can be used by the same university for general purposes to construct or acquire a building in the name of her late husband.

The woman’s husband was a professor of chemical engineering at the polytechnic university; they lived in the university and spent most of their lives at the university. She also left one quarter of her residual estate worth $126,000,000 to the university as a gift under the same conditions.

The will was probated and the executors rendered their accounting in 2003. In total, the polytechnic university received over $130,000,000 under the woman’s will and the university held $70,400,000 in an endowment fund in her husband’s name with the restrictions stated.
The university was located in Brooklyn and with the cash gift and endowment, the university expanded and improved its facilities; the university upgraded its status to a residential university. The university took out a loan from New York City in the amount of $90,000,000 to construct new dorms, new lecture halls, new laboratories, new research laboratories and improvements to the University facilities.

The loan was granted provided that the University has sufficient funds from tuition fees and other revenues equal to the amount they needed to pay for the loans. Queens Probate Lawyer said if their income from tuition fees fall below amount they needed to pay for the loan, the university will be in default.

The problem was on September 11, 2001, two airplanes crashed into the World Trade Center which sent alarm throughout the country. Students who had applied to the university withdrew their applications and went elsewhere for their college studies. The enrollment at the university dropped substantially. Also, the crash made information technology and computer engineering courses unpopular and the enrollment further decreased.

The University’s enrollment dropped and so did its revenues. Its total income from tuition fees and other revenues did not equal the amount it needed to pay for its loan from New York City.
Another problem generated by the drop in university attendance was that the University had to dip into its reserves and savings. NY Probate Lawyers said it’s eligibility to give out federal education loan programs and scholarships was endangered because it was about to lose its status as an educational institution that is financially responsible.

The University implemented cost-cutting measures by reducing staff, reducing pensions and holding off salary increases. The university was able to say at least $12,000,000.00 which helped ease the financial worries of the university but still the university was running on deficit. Its accountants project that if the enrollment does not improve, the university will be out of cash by 2007.

The University then went to the same surrogate court that probated the will and asked that the restriction imposed on the charitable gift be relaxed so that from being funds restricted for the sole benefit and use of faculty and student scholarship endowment, it can also be used for general purposes such as ensuring that the University remain liquid, meet all of its debt obligations, continue operations until student enrollment gradually goes back to normal levels.
The Surrogate Court held a hearing to determine if under the terms of the will, the restrictions imposed on the charitable gift of cash sums can be removed until such time as the university has improved its financial affairs.

The Court held that the woman’s last will and testament was one which had a discernible general charitable intent. The woman’s gift to the University was for the purpose of allowing the University to continue to provide quality education to students as well as to provide incentives to its teaching staff to remain teaching and to engage in research which will further the field of engineering.

The charitable intent of the testatrix will be nullified if her gifts were to be rendered useless because the University closes down. When this occurs, the law gives the courts jurisdiction and power to relax the restrictions on the gifts as provided in the will so that the general charitable intent of the testatrix will be given effect.

The Court explained that before the courts can relax the restrictions on the trusts created in the will, the university must prove that the gift was really charitable in nature; the testatrix has shown a general charitable intent when she created the trust and gave the gifts to the university in her will; and that circumstances have changed after the gifts were given that will make the university’s compliance with the restrictions impossible. That is to say, that the university’s financial health has been so affected by circumstances beyond its control that the university cannot comply with the restrictions imposed upon the gifts by the testatrix in her will that the university risks closing down and ceasing all its operations.

The Court held that the University has discharged its burden of proof. It has satisfactorily shown the grave financial straits it has fallen into without fault or irresponsibility on its part. The University has also shown its good faith and best efforts to reduce its operation costs. It has show that it has done all it could do to prevent the drain of its financial reserves, but to no avail.

The University has also proven to the satisfaction of the court that when it reclassifies the cash gifts of the testatrix, the funds will not be spent. The cash gifts will only stand in the books of account of the University as cash reserves only so that the University will not lose its eligibility status as a university through which federal loans may be granted. The University has also satisfactorily shown that only $5,000,000 of the testatrix’s charitable gift will be classified in its books and only so that it will not be considered by its creditors as in default of its loan obligations.

The Court granted the University’s petition to relax the restrictions on the cash gifts created as trusts in the testatrix’s will. It has also proven that it is on the verge of losing its status as a university through no fault of its own. And the relaxing of the restrictions is for a limited time only until the university’s financial problems are resolved.

Are you childless? Are you not on good terms with your relatives that you feel that they should not benefit from your estate? Are you considering making a trust of your estate and giving it as a grant to fund a charitable, religious or educational institution? At Stephen Bilkis and Associates, their New York Probate lawyers can not only research for you the viability of converting your estate as a trust through your will, their legal team can also help you word your will so that it can only be used for charitable purposes. Call Stephen Bilkis and Associates today and find out how you can create a trust out of your estate to benefit a charitable institution.

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