A small church is partially funded by a separate foundation that holds its endowment funds. Funds are distributed to support some of the church activities. If the church closes, can the foundation continue by modifying its mission in order to support other 501(c) organizations?
If the separate foundation is a community foundation, it can probably exercise its “variance” power to change the purpose of the fund when its purpose is no longer possible to fulfill. The variance power normally supersedes the requirement to go to court to make a change in purpose.
If the foundation is not a community foundation and is in a state that has adopted some form of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), which includes every state except Pennsylvania, there is probably a provision to permit changes in “small” and “old” trusts with only the approval of the state Attorney General. (See Ready Reference Page: “New UPMIFA Sets Rules For Management of Charitable Funds”) Pennsylvania has a similar rule for small trusts.
If none of these shortcuts works, it will probably be necessary to obtain court approval for a change in purpose under what is generally called the cy pres doctrine to allow a change in the purpose of a charitable fund when it is no longer possible to fulfill its original purpose. The cy pres rule looks for something “as near as possible” to the original purpose. While it may take time and money to obtain the court approval, the foundation should be able to modify the purpose to support some other charitable religious activity.
If the sole purpose of the foundation is to support the closing church, you may have to change the purpose of the foundation itself and not just the purpose of the fund. Talk with a knowledgeable lawyer or the Attorney General about what might be required to do that. It is likely to entail a court proceeding as well, but they can probably be combined.
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