All charitable organizations must honor the intention of their donors. Many donors restrict their gifts to charity to a specific charitable purpose. These gifts are “temporarily restricted” until the gift is expended by the charity for the purpose specified by the donor.
Some donors restrict their gifts so that only the income earned on the corpus of the gift may be expended for charity. Such gifts are called “endowments.” Many endowments are meant to earn income in perpetuity. What happens, then, when the charitable purpose of the gift becomes incapable of fulfillment or unnecessary? Suppose that in 1910, a donor established an endowment to benefit a church in Cascadia, Oregon. By 1941, the church no longer existed in Cascadia. (The property that once was the town of Cascadia is now an Oregon State Park).
Most charities must file an action in court to change a donor restriction on a charitable gift. But community foundations have the authority to change the purposes of a fund under certain circumstances. As defined in Treasury Regulations Section 170A-9(e)(v)(B)(1), a community foundation’s governing body has the power
…to modify any restriction or condition on the distribution of funds for any specified charitable purpose or to any specified organization if in the sole judgment of the governing body such restriction or condition becomes, in effect, unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community or area served.
The variance power ensures that endowed funds that designate a specific beneficiary or charitable purpose don’t become obsolete when the donor of the gift has long since passed.