Can a Texas university move donated endowment funds to its private foundation?

Plain-English summary

A donor had given Midwestern State University money earmarked for faculty endowment and student scholarships, originally preferring that the university itself manage the funds. Concern that the Public Funds Investment Act might limit how the university could invest the money led the donor to change that preference and ask that the university's private foundation manage the funds instead. The chair of the Board of Regents asked the Attorney General whether, and how, the university could transfer control of the funds to the foundation, and whether a simple written agreement would do or a court proceeding was required.

The Attorney General treated the situation as governed by a recent opinion (JC-0138) involving a junior college that wanted to move donated funds to a supporting foundation. The key point is that when someone gives money to a public institution for a restricted purpose, the institution does not own it outright. The funds are "impressed with a charitable trust": the university holds legal title, but the beneficial interest is locked to the donor's purpose and cannot be alienated at will. So the regents could not just transfer the funds by agreement.

To change who controls the trust, the regents have to go to court. Under section 112.054 of the Property Code, a court can modify a trust when, because of circumstances the settlor did not anticipate, following the trust's exact terms would defeat or substantially impair its purposes. The regents, who administer such funds under the Education Code, would petition a court to substitute the foundation's trustees as administrators. And because the Attorney General represents the public's interest in charitable trusts, that office is a proper party to the proceeding and must be notified, by certified mail with a certified copy of the petition, under section 123.003(a) of the Property Code. The opinion stressed it was answering only the legal questions and taking the facts as the university described them, since the opinion process does not resolve factual disputes about a gift's terms or the donor's intent.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Midwestern State regents who asked (what the opinion held): The opinion told the regents that the restricted donations were charitable-trust funds, that a written agreement would not suffice to move them to the foundation, and that they had to petition a court to modify the trust, giving the Attorney General notice.

Public universities and colleges holding restricted gifts (what the opinion held for them): At the time, the opinion treated restricted donations as charitable trusts the institution holds subject to an inalienable beneficial interest, so a change in who manages the funds required court-approved trust modification, not an internal transfer.

Donors to public institutions (what the opinion held for them): The opinion meant a donor's restricted gift carried legal protection: its purpose could not be redirected, and even a change in management required a court proceeding with the Attorney General as guardian of the public interest in the trust.

Common questions

Can a university just sign over donated restricted funds to its foundation?
No. The opinion concluded those funds are held in a charitable trust, and changing control requires a court to modify the trust, not a private written agreement.

Why are restricted donations treated as a trust?
Because the gift was made for a specific purpose. The opinion explained that the university's legal title to such funds is subject to an inalienable beneficial interest, which makes them impressed with a charitable trust.

What does the court have to find before allowing the change?
Under section 112.054 of the Property Code, the court must be shown that, because of circumstances the settlor did not know of or anticipate, complying with the trust's terms would defeat or substantially impair its purposes.

Why does the Attorney General have to be involved?
Because the Attorney General represents the public interest in charitable trusts. The opinion noted the office is a proper party that may intervene and must receive notice of the proceeding under section 123.003(a) of the Property Code.

Background and statutory framework

The opinion rested on the charitable-trust analysis of Attorney General Opinion JC-0138, which addressed transferring donor-restricted college funds to a supporting nonprofit foundation, and distinguished JC-0146, which involved legislatively appropriated funds. Restricted gifts to a public institution are impressed with a charitable trust: the institution holds legal title subject to an inalienable beneficial interest tied to the donor's purpose. Modifying such a trust is governed by section 112.054 of the Property Code, which lets a court of competent jurisdiction modify a trust upon a showing that unanticipated circumstances would otherwise defeat or substantially impair its purposes (Tex. Prop. Code § 112.054(a)(2)).

The regents administer such funds under section 103.08 of the Education Code and would petition the court to substitute the foundation's trustees as administrators. Because the Attorney General represents the public interest in charitable trusts, the office is a proper party that may intervene (Tex. Prop. Code § 123.002), and notice must be given by registered or certified mail with a certified copy of the initiating petition (§ 123.003(a)). The opinion emphasized that it resolved only legal questions and relied on the university's factual representations, consistent with the rule that the opinion process does not decide questions of fact.

Citations

Statutory provisions:

• Tex. Prop. Code Ann. § 112.054(a)(2) (Vernon 1995)
• Tex. Prop. Code Ann. § 123.002 (Vernon 1995)
• Tex. Prop. Code Ann. § 123.003(a) (Vernon Supp. 2000)
• Tex. Educ. Code § 103.08

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0240
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2000/jc0240.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

June 28, 2000

Ms. Kathryn A. Yeager
Chair, Board of Regents
Midwestern State University
3410 Taft Boulevard
Wichita Falls, Texas 76308-2099

Opinion No. JC-0240

Re: Whether donated endowment and scholarship funds may be transferred from the control of a university to that of its private foundation (RQ-0178-JC)

Dear Ms. Yeager:

You have asked this office whether and how certain funds donated to Midwestern State University (the "University") for the purposes of faculty endowment and scholarships may be transferred from the control of the University to that of a private foundation which, as we understand it, exists to benefit the University. As you explain it, "The proposed shift of funds would be made with the agreed provision that there would be no difference in purpose with regard to the use of the funds." Letter from Louis J. Rodriguez, President, Midwestern State University, to Honorable John Cornyn, Attorney General of Texas (Jan. 28, 2000) (on file with Opinion Committee) [hereinafter "Request Letter"].

We note at the outset that our response will of necessity be general in nature, relying on your representations concerning matters of fact with regard to these donations. We do not decide matters of fact in the opinion process. See Tex. Att'y Gen. Op. Nos. JC-0020 (1999) at 2, M-187 (1968) at 3, O-2911 (1940) at 2. Accordingly, to the extent that an understanding of these particular gifts, their status, and the donor's intent with regard to them would require fact-based inquiry, we can give advice only concerning the legal issues, taking the facts as you give them to us.

As you explain it, certain funds were given to Midwestern State University, apparently for the purposes of faculty endowment and student scholarships, with the "expressed . . . preference that the funds be managed by Midwestern State University, rather than its foundation." Request Letter, supra, at 1. Because you and the donor appear to believe that the Public Funds Investment Act restricts certain investments of these funds, but see Tex. Att'y Gen. Op. No. DM-489 (1998) (defining "public funds" subject to act), the donor "has now expressed a changed preference that the funds be managed by the University foundation, rather than the University." Request Letter, supra, at 1. You do not suggest that the gift of these funds was a revocable trust, and for the sake of the analysis we will presume that such is not the case.

You ask us first to consider the possible applicability of two recent opinions of this office, Attorney General Opinions JC-0138 (1999) and JC-0146 (1999). Attorney General Opinion JC-0138 concerned whether a public junior college could transfer funds donated by a private donor to a nonprofit foundation "created exclusively for charitable and educational purposes in providing support for the specific College seeking to transfer the funds." Tex. Att'y Gen. Op. No. JC-0138 (1999) at 1. Attorney General Opinion JC-0146, on the other hand, concerned whether a state university could transfer legislatively appropriated funds to a private, out-of-state endowment. We agree that the factual situation your letter describes, one in which you seek to transfer funds granted to Midwestern State by a private donor for restricted purposes from the control of the university's regents to those of the foundation allied with the university, is essentially the same as, and is therefore governed by Attorney General Opinion JC-0138.

You next ask, if "the funds described in this request are not general funds but funds impressed with a charitable trust . . . whether the transfer could be done by written agreement, or if the judicial proceedings suggested by JC-0138 must be followed." Request Letter, supra, at 1.

As we understand your description of the funds in question, they were given for restricted purposes and are not general funds of the university. In Attorney General Opinion JC-0138, we explained that "Restricted funds such as these are impressed with a charitable trust; the college's legal title to them is subject to an inalienable beneficial interest." Tex. Att'y Gen. Op. No. JC-0138 (1999) at 3.

Generally, the method by which such a trust may be modified is that set forth in section 112.054 of the Property Code, pursuant to which a court of competent jurisdiction must be shown that "because of circumstances not known to or anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of the purposes of the trust." TEX. PROP. CODE ANN. § 112.054(a)(2) (Vernon 1995). The remedy sought would be analogous to that described in Attorney General Opinion JC-0138. That is, the regents of Midwestern State University, who pursuant to section 103.08 of the Education Code are to administer such funds as these, would petition the court to substitute for them "the trustees of a nonprofit corporation created to provide support to the college in question . . . ." Tex. Att'y Gen. Op. No. JC-0138 (1999) at 4. Because this office represents the public interest in charitable trusts, "the attorney general is a proper party and may intervene in a proceeding" such as this. TEX. PROP. CODE ANN. § 123.002 (Vernon 1995). Notice of such a proceeding is to be given this office "by sending to the attorney general, by registered or certified mail, a certified copy of the petition or other instrument initiating the party's involvement in the proceeding." Id. § 123.003(a) (Vernon Supp. 2000).

SUMMARY

A gift of funds to a state university for a restricted purpose is impressed with a charitable trust. In order to modify such a trust, the university's regents must petition a court of competent jurisdiction for such a modification. The Office of the Attorney General, which represents the public interest in charitable trusts, is a proper party to such a proceeding, and should be given notice in the manner prescribed by section 123.003(a) of the Property Code.

Yours very truly,

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

James E. Tourtelott
Assistant Attorney General - Opinion Committee