SEPTEMBER 22, 2003 VOLUME 11, NUMBER 12
When Nathan Sanders died in 1955, his will created a “perpetual” trust for the benefit of three hospitals in Dayton, Ohio. The trust was to be managed by a bank (ultimately Bank One Trust Co.), and the income paid out annually. Forty percent of the income was to go to Good Samaritan Hospital and thirty percent each to Miami Valley Hospital and St. Elizabeth Medical Center. Forty five years later, St. Elizabeth closed its doors.
The Franciscan Sisters of the Poor, a Catholic order which sponsored St. Elizabeth, announced in mid-2000 that, faced with more than $20 million in losses over the previous two years, it was going out of the hospital business. A year later the Sisters notified the trustee of Mr. Sanders’ trust that they no longer expected to receive any portion of the income from the trust.
At the time the trust had originally been established Mr. Sanders had intended that the money would be used in perpetuity to maintain the Harriet and Nathan Sanders Memorial Fund at each of the three hospitals. With one of the hospitals closing its doors, the question facing the trustee was how to distribute St. Elizabeth’s share of the income.
Mr. Sanders’ nephew, great-nieces and great-nephews argued that his bequest had lapsed, since there was no one to receive its benefit any longer, and that St. Elizabeth’s share of the trust should be distributed as if he had made no provision for it in his will—in other words, to them. The other two hospitals named in the will (backed up by Ohio’s Attorney General) argued that the trust should henceforth distribute its income to them. The Ohio probate court agreed with the hospitals, and split St. Elizabeth’s future income share equally between Good Samaritan and Miami Valley Hospitals.
The Ohio Court of Appeals upheld the probate court, applying the trust doctrine of “deviation.” Under that doctrine a trust’s terms can be revised when circumstances change so that the original intent of the person establishing the trust can no longer be met. The probate court’s income split, ruled the appellate court, was a good resolution of a problem not anticipated by Mr. Sanders when he originally wrote his will. Bank One Trust Co. v. Miami Valley Hospital, August 29, 2003.
Arizona courts would probably reach a similar conclusion. In fact, in an Arizona case decided in 1993, a 1930 will left money for construction of a tuberculosis sanatorium. Since times had changed radically in the intervening decades, the Arizona Court of Appeals authorized distribution of the remaining trust balance for care of tuberculosis patients in the existing hospital facility.