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<\/pre>\nDonors often provide support to nonprofits in a way that responds to contemporary issues and the donor\u2019s particular interests. Examples include a prohibition on spending principal or a requirement that the fund be used only for a specified program or within a given geographical area. Over time, such restrictions can make full use of the funds impracticable or impossible.<\/p>\n
What happens if the charity wants to use these funds despite such restrictions, but the donor has died and there are no donor representatives available to consent to changes to the restrictions? The charity will have to get the approval of the Attorney General\u2019s Office (AGO) and ultimately a Supreme Judicial Court (SJC) decree releasing the restrictions to enable the full, expanded use of these financial assets.<\/p>\n
This requires an understanding of the various legal doctrines that apply to releasing fund restrictions and the techniques available depending on the size, age and nature of the charitable fund restrictions.<\/p>\n
Some funds have purposes that have become unlawful, impossible, impracticable or wasteful. For example, a \u201cfree bed\u201d fund at a hospital that pre-dates Medicaid assistance for indigent patients. For charities that wish to use such a fund for distinctly different purposes, say paying a patient\u2019s out-of-pocket costs, the charity would need to obtain AGO assent and a SJC order under the doctrine of cy pres (French for \u201cas near as possible\u201d).<\/p>\n
Other funds have management, investment or durational restrictions that are compatible with the charity\u2019s charitable activities but interfere with the accomplishment of those activities. For example, a geographical restriction on the use of funds to conserve land to a location where there are no conservable parcels remaining. In that case, the charity would seek what is called \u201cequitable deviation\u201d from that restriction, also requiring AGO assent and a SJC decree.<\/p>\n
Not all releases from fund restrictions require assent by the AGO and a SJC decree. Some restrictions found in smaller, older funds may be released through a technique called administrative modification, which requires only the assent of the AGO. This method is available for funds at least 20 years old that also have a value of less than $75,000.<\/p>\n
Finally, the Covid pandemic caused the Attorney General\u2019s Office to produce guidance that permits charities to borrow against the value of their endowment funds, once they have exhausted other techniques, such as seeking donor release of the spending restrictions. In order to obtain permission to borrow against the principal of an endowment fund, the charity must convince the AGO and the SJC that such borrowing will not simply delay an inevitable closure of the charity, and that the charity has a reasonable business plan for repayment.<\/p>\n
Charities with a variety of donor-restricted funds should identify those funds, distinguishing them from funds whose use has been restricted by the charity\u2019s own board. They should assess whether they have older, smaller funds that might be eligible for administrative modification. They should try to discern to the extent possible the general charitable intent of those donors who have imposed restrictions that are troublesome, and either identify a changed purpose that is as close as possible to that intent, or identify a change in the donor\u2019s restrictions that make the fund more usable consistent with donor intent.<\/p>\n