New Hampshire Bar Association
About the Bar
For Members
For the Public
Legal Links
Online Store
Vendor Directory
NH Bar Foundation
Judicial Branch

Set Your Business Apart - Advertise with NH Bar News!

Order with big business buying power.
New Hampshire Bar Association
Lawyer Referral Service Law Related Education NHBA CLE NHBA Insurance Agency
Member Login
Member Portal

Bar Journal - March 1, 2003

Transforming A Non-Profit Healthcare Entity


New Hampshire's Cy Pres Doctrine And RSA 7:19-b1

What is an established non-profit health care entity (or any other charitable entity for that matter) to do when, due to changed circumstances, it is no longer able to fulfill its charitable mission? It is critically important, particularly for the communities in which such charitable entities are located, that their charitable benefits be retained and their charitable missions perpetuated. To accomplish these objectives, a faltering entity will find both guidance and relief in the cy pres doctrine.2 Although the cy pres doctrine permits a redirection of charitable assets to prevent the failure of a charitable trust, it provides little or no guidance about how an entity in jeopardy of, or in the process of, failing to fulfill its charitable purpose should transform itself in a way the remains faithful to both its original mission and its intended beneficiaries. At least in the case of health care charitable trusts, RSA 7:19-b provides both a template and a process which was recently used by the Gale Home (hereinafter, "the Home") in its transition from a 24 bed nursing home facility into a grant making charitable foundation.

This article will: (1) set forth the relevant background concerning the Home’s closure; (2) explore the legal and ethical components of the Home’s dilemma; (3) outline a methodology, based upon statutory and common law, that provided a mechanism for facilitating the Home’s transition; (4) explain the Home’s transitional model; and (5) offer some suggested revisions to RSA 7:19-b to better facilitate future processes following this methodology. The article also suggests the possible expansion of this same methodology to non-health care charitable trusts in a way that envelopes various stakeholders in the transition process consistent with the contours of the cy pres doctrine.


Some faltering health care entities seeking to wind up their affairs or to transition into some successor entity may be guided by their by-laws or by applicable law.3 With such clear direction, their task is relatively easy. Others, like the Home, must devise more creative solutions to the various challenges caused by changing circumstances, particularly when property has been given in trust for a specified charitable purpose, as was the case with the Home.

In her Will, Mary G. Gale, late of Manchester, expressed her desire to establish a home for aged and destitute women in the City of Manchester. The Home’s mission is set forth in Paragraph 27 of her Will where she left specific instructions about when and how the Home was to be created and funded and where she issued the following directives:

I give, bequeath and devise all the rest residue and remainder of my estate real personal or mixed whether in the hands of my executors or elsewhere on the first day of January 1890 to one or more trustees to be appointed by the Supreme Court of the State of New Hampshire on the application of my executors in trust for the establishment in the city of Manchester of a "Home for aged and destitute females". Said trustees are authorized to expend such part of the sum herein bequeathed for the purchase of the necessary ground the erection of buildings and the furnishing of the same as such trustees or a majority of them shall deem most suitable for the purpose aforesaid, reserving however such sum that the income thereof shall be sufficient to pay the expenses incident to the practical operation of such "Home".

And said trustees or a majority of them may make such reasonable rules and regulations relative to the admission of persons to such "Home" and the manner in which the same shall be conducted as in their judgment shall be most likely to promote the usefulness of such an institution and to carry out the purposes of such trust to the greatest advantage...

Pursuant to Mrs. Gale’s request, the Home was incorporated, circa 1890, by special act of the New Hampshire legislature to receive funds from the Estate of Mary G. Gale and to fulfill the directives set forth in Mrs. Gale’s Last Will. Pursuant to Mrs. Gale’s wishes, the Home was established and operated in the City of Manchester for more than a century.

During the past decade, the Home struggled to meet its operational expenses due to the escalating costs of providing nursing home care. Although the Home was not originally established as a "nursing home", it gradually evolved into such a facility over the course of its existence.4 That evolution (one which was not likely envisioned by Mrs. Gale) and the associated costs of providing the type of care typically provided in such a setting, combined to exert tremendous financial pressures on the Home.5 The Home estimated that the average cost per bed was between $175-$190 per day. Medicaid had been reimbursing $110 per bed, per day. Private pay residents would, presumably, have paid the true daily costs of the Home’s care, which was in excess of $200 per day. Given the economics of operating a viable nursing home at Medicaid rates, the Home — due to its size — had become an anachronism. Ultimately, it became financially impracticable, obsolete, ineffective and prejudicial to the public interest for the Home to continue to operate as a 24 bed nursing facility, which, coincidentally, was neither envisioned nor founded as such an entity.

The Home had been able to absorb its losses on account of gains received from the stock market’s remarkable advances in recent years. But for the stellar performance of the stock market during most of the 1990’s, the Home’s condition would likely have become much more acute much sooner.6 Mrs. Gale clearly expected and directed that the Home’s income be sufficient to meet its operating expenses, but economics were imperiling and severely limiting the Home’s mission. If not remedied by the Court, Mrs. Gale’s intentions would have continued to be frustrated to the eventual and permanent detriment of the poor elderly women she had intended to benefit.

In the late 1990’s, the Home’s Board of Trustees (hereinafter, "the Board") determined that the Home was not fulfilling its broad original mission of housing the poor and aged women of the City of Manchester and that it was not likely do so if the Home’s historical patterns continued. When it decided to seek judicial relief, the Home was only serving 12 women (and could, at full capacity, serve only 24),7 rather than the hundreds of poor elderly women of Manchester who stood to benefit from a redirection of the Home’s substantial charitable assets.8

After much internal study and deliberation and after receiving the benefit of expert review of its financial situation, the Board recognized that some change was inevitable.9 Consistent with its fiduciary duties, the Board spent much time and effort reviewing and examining different courses of action and soliciting input from various qualified sources to inform its deliberations. Driven by fiscal concerns and its fiduciary duty, the Board needed to chose between perpetuating Mary Gale’s mission through a different vehicle, or permitting the mission to fail due to the eventual depletion of the Home’s charitable assets.10 After engaging in an extensive, deliberative and thoughtful internal process and after exploring other options available to it,11 the Board decided to perpetuate the Home’s mission by seeking permission to transition the Home into a grant making charitable foundation guided by Mrs. Gale’s stated mission. The major challenge was to develop a process that would facilitate the transition in a way that would ensure fidelity to Mrs. Gale’s stated mission , while at the same time comporting with substantive law generally (and the cy pres doctrine in particular).12


The Home’s dilemma was both caused and resolved by the Last Will of Mary Gale. In short, Mrs. Gale had a mission and, although not specifically stated in her Will, it was implicit that her intention was for a "home" to continue indefinitely.13 Nowhere in her Will did Mrs. Gale specify exactly what type of home was to be built, how large it was to be, or what would happen if changed circumstances made the operation of such a facility either impossible, impracticable, obsolete, ineffective, or prejudicial to the public interest to carry out. Instead, Mrs. Gale’s Last Will provided a clear directive about what she had envisioned for the Gale Home. At all times, trustees must be faithful to both the trust and to the corporation that they serve and to the settlor’s intention expressed therein.14 The Home’s Board attempted to discharge these duties by identifying each of them and then endeavoring to remain faithful to them.

When the Board decided to close the Home, it became apparent that it was duty bound not only by law, but by ethics as well.15 Legally, the Board needed to act as a prudent fiduciary and to remain faithful to Mary Gale’s stated mission. Of equal or greater importance, however, were less clearly defined duties to other stakeholders including the Home’s current residents,16 the residents’ families and caregivers, the Home’s devoted employees, and the residents of the City of Manchester (particularly, the poor elderly women that Mrs. Gale had set out to benefit when she sought to establish the home).17 The Home’s transition process needed to be one in which these various constituencies were considered and their interests protected.

Given the foregoing duties, it became apparent to the Board that many stakeholders would need to be given weight and due consideration in the always difficult and sometimes heart-wrenching process of closing a century old home for elderly women.18 It was clear that the legal interests of the various stakeholders would be safeguarded by the Board’s faithful adherence to the methodology described below. The Board decided to discharge its ethical obligations by keeping the Home’s residents, their families and caregivers, and the employees updated and a few steps ahead of the legal process to permit them the opportunity to make choices before choices were made for them.19, 20

Once it became apparent to the Board that the Home could no longer continue its historical operations without either (i) severely eroding is endowment, or (ii) sacrificing its mission to abate its fiscal problems, it decided to seek judicial relief. Fortunately, various legal mechanisms were in place to make its task more tenable and to provide the Home with the relief it needed to perpetuate its mission. With those elements satisfied, the challenge then became to find a process that would facilitate the Home’s transition into a successor entity. That entity would need to perpetuate - in a meaningful way - the Home’s original mission by redirecting its assets so as to reach Mrs. Gale’s target population in a way that would be enduring more than a century after she had first conceived of the Home.


New Hampshire’s cy pres doctrine may be broken down into three distinct components, which are illustrated schematically below.






These three interrelated components together provide a framework for transitioning a faltering entity into a viable successor.

The first component, the establishment of a charitable purpose is readily determined by reference to the governing instrument, Mrs. Gale’s Will. The second component, the failure of the charitable purpose, is statutorily actually broader than what is stated above.21 Determination of this component is highly fact specific and may or may not require extensive proof and/or expert testimony.22 The third component, permitting a redirection for the benefit of the community, is intended to prevent the failure of a charitable trust. It is this component of the cy pres doctrine that is best served by a process designed to elicit the community’s needs and to provide a sounding board for how those needs should best be met. For health care entities, that process is codified at RSA 7:19-b.

New Hampshire’s cy pres doctrine does not provide a process through which such a faltering entity might distill a "successor purpose." Rather, it explicitly empowers the Court to prevent the failure of a charitable trust and permits a redirection of charitable assets in myriad ways, subject to the statute’s broad mandates and the Court’s authority.23 In order to discharge its fiduciary duties and to ensure that the final decisions would benefit the community, the Home sought to engage in a process that simultaneously considered the various duties set forth above to facilitate a transition that would satisfy Mrs. Gale’s wishes and the requirements of the cy pres doctrine. To achieve those ends, the Board followed – to the extent applicable – the process set forth in RSA 7:19-b in an advisory capacity, even though it was not directly applicable to this particular transaction.

The acquisition of "health care charitable trusts" is governed by RSA 7:19-b. Although that section does not specify what its purpose is, RSA 7:32-c, concerning community benefits and community benefit plans, states that the purpose of that subdivision is "[t]o ensure that health care charitable trusts provide the communities they serve with benefits in keeping with the charitable purposes for which the trusts were established and in recognition of the advantages the trusts enjoy…." One might assume that — although unstated — this same rationale also applies to RSA 7:19-b.

In broad terms, this statute requires, as a prerequisite to entering into an "acquisition transaction", that a health care charitable trust’s governing body: (i) act in good faith; (ii) in a manner consistent with its fiduciary duties to the health care charitable trust, and (iii) while meeting seven enumerated minimum standards.24 Items (i) and (ii) impose a statutory obligation on such an entity’s governing board to act in accordance with established common law principles.25 Those obligations are a necessary prerequisite to any non-profit corporation’s activities, but they are codified by this statute. Item (iii), however, creates an entirely new set of minimum obligations, required as a prerequisite to entering into any sort of acquisition transaction.26 In the Home’s case, those standards, to the extent applicable, provided the Home with a convenient framework for facilitating its transition.

The "minimum standards" established by RSA 7:19-b (II) are as follows:

  1. that the proposed transaction is permitted by applicable law;
  2. that due diligence has been exercised in selecting the acquirer;
  3. that conflicts of interest or "pecuniary benefit transactions" have been disclosed and deemed inconsequential;
  4. that the proceeds received constitute fair value;
  5. that the assets of the health care charitable trust and any proceeds to be received on account of the transaction shall continue to be devoted to charitable purposes consistent with the charitable objectives of the health care charitable trust and the needs of the community which it serves;
  6. that, if the acquirer is other than a New Hampshire health care charitable trust, control of the proceeds shall be independent of the acquirer, and;
  7. that reasonable public notice of the proposed transaction and its terms has been provided to the community served by the health care charitable trust, along with reasonable notice and an opportunity for said community to be heard to inform the deliberations of the health care charitable trust’s governing board. 27

Beyond the foregoing, the statute also requires that notice of the proposed transaction, along with other substantiating documentation, be provided to the Director of Charitable Trusts within certain established timeframes.28

In the years leading up to its eventual closure, the Home was faced with perennial operating deficits which it was able to absorb, in large part, due to the meteoric performance of American equities markets throughout the 1990’s. Faced with its escalating operating deficits, the Board dutifully began to examine various options available to it. Before embarking on the legal process, the Board obtained professional review of its operations and also commissioned a community-based task force to examine options available to it. In the time preceding its decision to seek cy pres relief, the Home engaged a consultant to review its operations and to make recommendations. That independent review concluded that the Home’s problems were revenue related and that its problems were not due to its costs. Based upon its sources of revenue, the Board determined that to increase revenues, the Home would need to deviate from its charitable mission by accepting residents who had the means to pay at a much higher private pay rate. By definition, such women were not in the class that Mrs. Gale had sought to benefit. Consequently, the Board commissioned a task force, comprised of various business and community leaders, to evaluate various "transition" options available for the Home.

Beyond providing an objective assessment of the Home’s condition and options for its future, the task force – on account of its community composition – provided the Home’s board with valuable insights into the community’s needs. Ultimately, and due in part to the input received from its consultant and the task force, the Board decided that the Home would eventually need to close and to cease its historical operations. Once that difficult decision was made, a twofold question remained: how would the Home close and what would become of its charitable assets?

Throughout the process, the Home’s transition was guided by Mary Gale’s Will29 and also by the relief it had planned to seek. Although RSA 7:19-b provided a handy means for effectuating a transition, the Board remained steadfast in its commitment to Mrs. Gale’s wishes and always mindful of the cy pres relief it sought. Mrs. Gale had planned to establish a Home for Manchester’s poor elderly women. In the Board’s experience and in the opinion of others who had studied the issue, the Home was not viable. Once the Board decided, and could establish — to the satisfaction of the court and the Director of Charitable Trusts — that the continued operation of such a Home was either "impracticable, obsolete, ineffective, or prejudicial to the public interest" it was legally bound to create, convey its assets to, or merge with a successor entity that would fulfill Mary Gale’s stated objectives. The cy pres statute mandates a redirection of charitable assets "[t]o some charitable purpose which is useful to the community, and which charitable purpose fulfills, as nearly as possible the general charitable intent of the settlor or testator."

Regardless of what avenue it chose to pursue, the Board needed to safeguard the Home’s major assets, particularly, its endowment, real estate, and tangible and intangible personal property.30 To assess other options available to it, the Board published a request for proposals seeking proposals from parties interested in acquiring the Home’s licenses and real estate with the hope that some entity might step forward and continue the Home’s operations. Few replies were received. The replies that were received convinced the Board that no "partner" would likely emerge to continue the Home in a way that would ensure that the Home’s assets were safeguarded and that its mission would be perpetuated. Consequently, the Board decided that its most viable option was to redirect the Home’s charitable assets into a grant-making charitable foundation and to dispose of the balance of its assets for fair value. This decision marked the beginning of its winding up of its affairs and the public part of its transition process.

With no viable acquirer, the Board – in conjunction with its pending cy pres petition – endeavored to fulfill the three main mandates of RSA 7:19-b, by (i) acting in good faith; (ii) in a manner consistent with it fiduciary duties to the health care charitable trust, and (iii) while meeting the statute’s various enumerated minimum standards.

The Board’s pre-petition diligence, extensive internal review, retention of a consultant, and creation of a transition task force satisfied the requirement that it acted in good faith and in a manner consistent with its fiduciary duties. Indeed, the product of those efforts highlighted the Home’s crisis and mandated that, for the sake of the Home’s mission and to faithfully discharge its fiduciary duties, the Board needed to take action to avoid permitting further erosion of the corporation’s charitable assets due its growing operational deficits. In support of its cy pres Petition, the Home detailed its methodology and explained that it would comply with the mandates of RSA 7:19-b. The elements of this statute, as applied by the Home in its transition, are discussed below.

(i) Ensuring that the transaction is permitted by applicable law

This statutory section purports to be a "catch-all", but finds some limitation in the word "applicable". Of particular relevance to this transaction was the statute’s reference to RSA 292.31 New Hampshire voluntary corporations are governed by RSA 292 and the Home is actually a voluntary corporation, albeit one established by special act of the legislature. In essence, this provision required the Board to ensure that the transaction it was contemplating was not prohibited by the Home’s by-laws or other laws affecting its corporate existence. Unlike many not-for-profit corporations formed pursuant to RSA 292, neither the Home’s charter nor its by-laws contained any provision governing the Home’s dissolution.32 Again, the transaction was bounded by the cy pres statute, but driven by the Board’s creative plans for the Home’s successor entity.

ii. Ensuring that due diligence has been exercised in the anticipated transaction

As a technical matter, the Home was not being "acquired". Hence (and for other reasons set forth above), RSA 7:19-b did not apply. Nevertheless, the directive of RSA 7:19-b to exercise due diligence had been amply satisfied by the Board’s internal investigation and review. The Home’s planned metamorphosis was not an acquisition, but a transition, for which the acquisition statute provided little guidance, except for its reminder to the Board to fulfill its fiduciary duties and to consider the "best interest of the … trust and the community which it serves." 33

iii. Requiring disclosure of material conflicts of interest or "pecuniary benefit transactions

The required disclosure of material conflicts of interest or "pecuniary benefit transactions", while not critical to the actual transition, is an important part of the "public" or "community" component of matters involving any transition of a charitable trust. Self-dealing is almost always inconsistent with the community’s best interest. And if it is not, the simple appearance of self-dealing seems to be.34 In the Home’s case, the majority of its assets were going to be transferred into a successor charitable foundation. By definition, the opportunity for, and possibility of, self-dealing was limited by the Home’s transition transaction itself. While full disclosure of such conflicts is probably desirable, consideration should be given to the practical affect any such conflict could have given the structure of any particular transaction.

iv. Requiring that the proceeds received constitute fair value

Throughout the Home’s transition process, the concept of "fair value" continued to emerge. Fair value is not defined in the statute.35 Without a working definition of "fair value" the rigid application of RSA 7:19-b to any particular transaction (including health care transactions) is problematic. A better and more appropriate measure would be "market value", or at least the concept of fair value specifically tied to considerations of market value within the statute. In the usual case, the true value of any item is really what a willing buyer will pay for it.36 Implementation of, or at least reference to, a market value approach could avoid the subjectivity which inevitably accompanies a consideration of fair value.

In the Home’s case, the only assets for which it sought to receive "value" was its unique real estate and licenses to operate its nursing home beds. While both assets arguably had some value, the Home was only able to realize whatever a willing buyer would pay for either asset. The Home handled the issue of value by letting the market decide, subject to the Board’s duty to act in good faith and as prudent stewards of the Home’s charitable assets. The market was well defined by the scope of its various well-publicized requests for proposals. So long as all interested parties received notice of the sale, an opportunity to participate in the bidding process, and equal access to pertinent information, then fair market value will likely be received from one willing to offer it.

Another vexing issue is whether the statute requires a board to accept the highest price offered, even if acceptance of such an offer would be inconsistent with the particular charitable mission. The classic quandary would be whether it would be incumbent upon a Board to accept a high offer and convey an historic building to an entity intending to raze it, or whether a board would be justified in permitting a "charitable discount" by accepting a lower offer, but conveying the same real estate to an entity with a mission and purpose consistent with that of the seller, so long as the mandates of cy pres are met. Although RSA 7:19-b, II(d) does not address this concern, the cy pres statute does.

The cy pres statute both permits and requires, in the case of a charitable trust’s failure, fulfillment – as nearly as possible – the purposes of the original trust. In such a case, the mechanism for obtaining substantive relief would favor a "charitable discount" if discounting the market value of a charitable asset would result in the use of such an asset in a manner consistent with the charitable purposes for which it had been previously employed. However, an equally persuasive argument could be made that, by maximizing the value received, and then directing those proceeds toward the furtherance of the original charitable objective, the overall purposes of the trust would still be advanced, albeit in a different way. By definition, charitable health care trusts (and charitable trusts in general) exist to promote non-quantifiable charitable objectives. For this reason, the statute would be strengthened, and made more consistent with the cy pres doctrine, if governing boards were given discretion to apply appropriate charitable discounts.

v. Requiring that the assets of the health care charitable trust and any proceeds to be received on account of the transaction shall continue to be devoted to charitable purposes consistent with the charitable objectives of the health care charitable trust and the needs of the community which it serves.

This statutory mandate is consistent with the cy pres doctrine. Indeed, the language is nearly identical to some portions of RSA 547:3-d. Hence, if an organization is seeking cy pres relief – as the Home was – then this condition would be satisfied and would aid a charitable trust in its quest to obtain cy pres relief. Again, it would seem that the intent of both the cy pres doctrine and RSA 7:19-b is to permit transitions and acquisitions, but not at the community’s expense.37

vi. Requiring that, if the acquirer is other than a New Hampshire health care charitable trust, control of the proceeds shall be independent of the acquirer.

The foregoing section was not relevant to the Home’s closure. However, to obtain cy pres relief, any transition would need to benefit the target community. Hence, the proceeds would necessarily need to be devoted to that purpose, within this State and, more particularly, within the target community. This section would assist an entity seeking to transition by focusing it on the limits of the cy pres doctrine.

vii. Requiring that reasonable public notice of the proposed transaction and its terms has been provided to the community served by the health care charitable trust, along with reasonable notice and an opportunity for said community to be heard to inform the deliberations of the health care charitable trust’s governing board.

This provision, like (vi) above, is designed to maximize the benefit to the target community by ensuring that charitable assets are redirected to achieve maximum benefit to the community. In the Home’s case, notice was published and a public hearing was held to solicit the community’s input about the needs of Manchester’s poor elderly women. Prior to the hearing, the Home made available for public review and inspection the Home’s Petition for cy pres relief and all other documents comprising its transition plan. By engaging in this process, an entity seeking cy pres relief is in a strong position to represent to the Court that community needs have been sought out, examined, and achieved by an entity’s plans for redirection.


In the absence of a viable acquirer or suitable merger opportunity, the Home opted to transfer its assets to a successor charitable foundation which it created for the purpose. In its Petition, the Home termed its proposed conversion into a grant making charitable foundation a "transition transaction." As part of this transition, the Home created a successor charitable corporation to receive the Home’s assets in accordance with the cy pres statute.38 This successor charitable corporation was established to perpetuate Mrs. Gale’s charitable mission through its grant making.

Upon the Court’s approval, the Board created a successor independent charitable foundation that qualified as a tax exempt organization for, among other things, the purposes of: (i) receiving funds from the Home without any tax consequences, and (ii) continuing the Home’s charitable mission without incurring any tax consequences through its grant making.

The foundation’s objectives will be to assist aged and needy women in maintaining basic housing and procuring services to enable them to enjoy (into their elder years) the comforts and amenities of a home.39 The Board further determined that the foundation’s specific mission and purpose will be to provide for "housing for aged and needy women of Greater Manchester, including in-home services, such as transportation, deliveries, nursing care, and home visits." To achieve the foregoing objective, the foundation will provide grants in accordance with its Articles of Agreement and By-Laws, which are expected to exceed $500,000.00 per year.

The Board decided to create a charitable grant-making foundation to ensure that Mrs. Gale’s intention would be perpetuated. After reviewing the needs of Manchester’s elderly population, consulting with public health officials, and receiving public comment through public hearing, the Board determined that the current trend was for elderly women to remain in their homes. Consequently, the Board endeavored to continue Mrs. Gale’s vision of a home by bringing the elements of a home to Manchester’s poor elderly women through a contemporary redirection of the Home’s charitable mission.40 So as not to lose site of the foundation’s charitable mission, direct reference was made to both the Gale Home and to Mrs. Gale’s Last Will in the Articles of Agreement and in the By-Laws in order to guide future directors of the Gale Foundation and to ensure that Mary Gale’s mission and vision will not become obscured.


The Board followed the pertinent mandates of RSA 7:19-b in an advisory capacity. The statute could be made to more flexible and applicable to other transactions, beyond "acquisition" transactions which would fall under its purview. Amendments to that statute that would expedite "transition" transactions like the Home’s would serve the public interest so long as those elements of RSA 7:19-b that would apply to acquisition transactions are made inapplicable, or less burdensome, particularly the production of material now required by RSA 7:19-b, III. Similarly, "transition transactions" should be made exempt from the fair value showings, except to the extent that charitable assets were to be redirected to anywhere other than a successor charitable entity.

In its current state, the statute contains some elements which render its literal application difficult.

  1. The statute could be broadened to reach "transition" transactions like that undertaken by the Home. However, if the statute were so broadened, it would need to be less burdensome in a "transition" case and would need to relieve entities seeking to transition from some of its burdens, particularly if no disposition of charitable assets was to occur.
  2. The statute’s public input component is a helpful one, but more direction could be given on how such input should be received and, once received, what a governing board is to do with that input.
  3. Similarly, the provisions of RSA 7:19-b, II have the potential to make the process cost prohibitive. Some consideration should be given to limiting the reach of the statute to such charitable trusts having assets valued at more than $2,000,000 in accordance with the entity’s most recent 990 filing.

Regardless of whether the statute is broadened, some of its language should be tightened, such as the "fair market value" concept discussed above. Such a change might also include a provision permitting a "charitable discount" to provide a health care charitable trust with some discretion and ability to deviate from a strict application of fair market value, consistent with its fiduciary duties and the contours of the cy pres doctrine.

In the final analysis, RSA 7:19-b provides a mechanism for distilling a successor purpose and a transitioned process for faltering entities seeking cy pres relief. In short, RSA 7:19-b compliments the cy pres statute by forcing health care charities to engage in a process that is intended to lead to the perpetuation of charitable endeavors for the greater good of the communities in which those endeavors are to be carried out. For those health care entities, like the Gale Home, that are not directly subject to its mandates, RSA 7:19-b and the cy pres doctrine together provide a process that will instill confidence in the public, state regulators, and the judiciary, while ensuring that any redirection of charitable assets is well conceived and truly designed to perpetuate a charitable purpose in a way that will benefit the relevant community.



The author wishes to extend his sincere thanks and gratitude to the Gale Home’s Board of Trustees for their commitment to the Home’s transition process and to perpetuating Mary Gale’s charitable mission. Most importantly, the author must acknowledge and express his personal gratitude to the late Mary Gale whose inspiring vision and generosity will continue to touch many lives for years to come through the charitable mission that was of her making.


N.H. Rev. Stat. Ann. § 547:3-d (2002).


For many voluntary (i.e., non-profit) corporations, the answer to this question may be contained in their articles of agreement and/or bylaws. See N.H. Rev. Stat. Ann. § 292:2,III (2002).


The Home initially entertained residents who were able to function somewhat independently. Those entering were required to undergo a physical examination and to perform various daily functions for themselves.


The Home had a reputation for providing outstanding personal care to its residents and consistently earned high marks from licensing agencies that periodically reviewed and inspected it.


The recent bear market has underscored the precariousness of relying upon an endowment to subsidize operational costs, particularly in a climate where endowments – like the Home’s – had shrunk by millions of dollars despite prudent and professional investment strategies.


Due to the Home’s economic circumstances, the Board had decided not admit new residents until it decided upon a course of action.


The Home’s endowment was approximately $10 million, exclusive of its real estate holdings.


Consistent with its fiduciary duties, the Board spent much time and effort reviewing and examining different courses of action and soliciting input from various qualified sources to inform its deliberations.


Although New Hampshire law is not entirely clear on this point, it would seem – beyond being a matter of fiduciary duty – against public policy to permit the Home’s assets to be diminished, particularly when Mrs. Gale’s will had implicitly expressed her intention that the Home continue in operation indefinitely.


The Board initially "marketed" the Home by soliciting proposals from other entities that may have been interested in acquiring it. Its solicitation efforts were unsuccessful.


The Home’s closure also included many other concerns common to the closure of any business and other tax exempt entities. For instance, personnel issues and severance packages, concerns over insurance, continuation of tax exempt status, etc. all had to be addressed during various phases of the Home’s closure.


As fiduciaries to the Home and/or the testamentary trust created under Mrs. Gale’s Will, the Board was bound to conserve the Home’s charitable assets in order to perpetuate its mission. It is beyond the scope of this article to examine all of Board’s various fiduciary duties. However, the author is of the view that, although the Home was the receptacle for the funds entrusted to it, Mrs. Gale’s clear intention was that the property so entrusted would be managed for the benefit of her target population via a corporate entity. The corporate entity was merely "incidental", and "not of the essence". The language of her Will, partially replicated in the Home’s corporate organizational documents, was operative. See William F. Fratcher, Scott on Trusts, Fourth Edition, §§ 385A and 397.3 (1989). Consequently, the Board was guided by the language of Mrs. Gale’s Will, which created the fiduciary relationship and clearly delineated the donor’s intent.


See, Bartlett v. Dumaine, 128 N.H. 497, 505 (1986).


For purposes of this article, the term "ethics" is used to define moral obligations, as opposed to legal ones.


The residents ranged in ages from their mid 60’s through their 90’s and were in various conditions of health.


In the context of charitable trusts, there seems to be emerging a duty to the community, or to the public which is the intended beneficiary of the charitable trust. While this duty is not yet clearly specified in New Hampshire law, this view is (at least inferentially) advanced in New Hampshire’s statement of the cy pres doctrine and in RSA 7:19-b both of which contain references to a target community. By statute, the Attorneys General, through the Director of Charitable Trust, is the voice and representative of the public. See RSA 7:20.


The Home’s process was not entirely without precedent. The Centennial Home in Concord ceased operations in the 1990’s and engaged in a similar transition process. The author wishes to acknowledge the work of legal counsel involved in that closure, particularly, Attorney Thomas Morse who shared some lessons learned from that process with the author who graciously employed some of their well chosen techniques to facilitate the Home’s closure.


In the event of a nursing home’s closure, RSA 151:26 requires that residents be given at least a 30 day notice prior to closure. Given the impact of the Home’s closure upon its employees, residents, residents’ families and caregivers, an ethical decision was made to keep those stakeholders fully advised of the process and, in most cases, ahead of the process to permit them to make choices unaffected by timelines over which they would have little or no control. The Board also devised a plan to retain the Home’s employees during this transitional phase and to conclude its relationship with various parties in a way that would ensure finality and fairness to all involved and an orderly winding up of the Home’s operations.


Representatives of the Board held many meetings with the staff and the residents’ family members to keep them advised of the progress of the Home’s planned transition. The meetings were held out of respect for these stakeholders and to ensure that none of them were unfairly prejudiced or surprised by the process. Ultimately, this open communication permitted the Home’s staff to seek and find alternative employment and afforded the residents and their families time to secure alternative housing. When the first of several hearings was held in the Hillsborough County Probate Court, the Home was vacant a no formal objections were made contesting the Board’s plan to close, or to its method of closing.


See N.H. Rev. Stat. Ann. § 547:3-d (2002) which is written in the disjunctive to permit the court to exercise its cy pres powers in a multitude of circumstances, the presence of any one of which could or would cause a charitable trust to fail.


See N.H.R.Evid. 702 (2002).


In its Petition, the Home appealed to the Court’s equitable powers as well which are preserved under N.H. Rev. Stat. Ann. § 547:3-b (2002).


See N.H. Rev. Stat. Ann. § 7:19-b (II) (2002).


For instance, in accordance with its fiduciary duties and consistent with the charitable trust’s organizational documents, etc.


See N.H. Rev. Stat. Ann. § 7:19-b (I)(a) (2002)(generally defining an acquisition transaction as the transfer of direct or indirect control of 25 percent or more of the assets of a health care charitable trusts assets by virtue of any number of business combinations including mergers, leases, consolidations, etc.


See N.H. Rev. Stat. Ann. § 7:19-b (II)(a)(2002).


See N.H. Rev. Stat. Ann. § 7:19-b (III)(2002).


See Bartlett v. Dumaine, supra.


In addition to its real estate, the Home also owned various personalty and rights to operate its 24 nursing home beds. Although the Home did enter into an agreement to convey its beds, the mechanics of that transfer are beyond the scope of this article and, as of the time this article was written, had yet to receive final approval.


See N.H. Rev. Stat. Ann. § 292 (2002) which governs "voluntary" or not-for-profit organizations. This statue is not nearly as exhaustive as RSA 293-A which governs business corporations. Hence, the mandates implicated by reference to it are not particularly burdensome.


During the transition process, the Board decided that, until the last of the Home’s residents had passed on, the Home as a corporate body would remain in existence to discharge its obligations to the Home’s those residents. Thereafter, any assets remaining in the Home would be transferred to the Home’s successor foundation.


See N.H. Rev. Stat. Ann. §7:19-b (II)(b)(2002).


See, e.g, alleged corporate wrongdoing involving Enron and Tyco, etc. for lessons learned from the private sector’s self-dealing where no direct charge to care for the community’s welfare was operating.


Black’s Law Dictionary defines "fair value" as, among other things, "present market value." See Black’s Law Dictionary, Sixth Edition, 1990.


Black’s Law Dictionary defines "fair market value" as, among other things, "the amount at which property would change hands between a willing a buyer and a willing seller, neither being under any compulsion to boy or sell and both having reasonable knowledge of the relevant facts. See Black’s Law Dictionary, Sixth Edition, 1990.


See N.H. Rev. Stat. Ann. § 7:19-b, VI (b)(2002)(stating that the standards set forth in RSA 7:19-b, II do not "[s]upplant or restrict the standards that may lawfully be applied in connection with the doctrine of cy pres."


The closure of the Home actually involved three separate entities: The Gale Home (the original corporation), an Irrevocable Life Care Trust (created to ensure that the Home’s various duties to its life care residents were discharged, and the successor charitable foundation. The Home, as a corporate body, would – as set forth above — continue to exist until the last former Gale Home resident died. During this time, the Board would (i) monitor the Trust created for the life care residents, and; (ii) remain involved in the transfer and the occasional oversight of the Home’s former residents, who remained in the local area, at whatever successor facility they choose to enter upon their departure from the Home. Upon the death of the last of the Home’s current residents, the Home planned to petition the Court for a final discharge of any of its remaining charitable obligations.


The Board determined that "aged" shall mean over the age of 65 and "needy" shall be determined by an appropriate national or state standard of need/poverty, and/or as reasonably determined by the Board.


So as not to lose site of the foundation's charitable mission, direct reference was made to both the Gale Home and to Mrs. Gale's Last Will in the Articles of Agreement and in the By-Laws in order to guide future directors of the Gale Foundation and to ensure that Mary Gale's mission and vision would endure.

The Author

Attorney Todd C. Fahey is the founder of Todd C. Fahey, Esq. P.L.L.C. in Concord, New Hampshire. His practice focuses on the representation of fiduciaries and beneficiaries of charitable trusts.


Your New Hampshire resource for professional investigative services since 2005.

Home | About the Bar | For Members | For the Public | Legal Links | Publications | Online Store
Lawyer Referral Service | Law-Related Education | NHBA•CLE | NHBA Insurance Agency | NHMCLE
Search | Calendar

New Hampshire Bar Association
2 Pillsbury Street, Suite 300, Concord NH 03301
phone: (603) 224-6942 fax: (603) 224-2910
© NH Bar Association Disclaimer