Planned Giving – Part 4 – Hull on Estates and Succession Planning #198
This week on Hull on Estate and Succession Planning, Ian Hull continues his discussion on charitable remainder trusts.
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Planned Giving – Part 4 – Hull on Estates and Succession Planning #198
Welcome to Hull on Estates and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag. The podcast you’re listening to will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto, here are Ian and Suzana.
Ian Hull: Hi, welcome to Hull on Estates and Succession Planning. You’re listening to and probably watching…some of you are…episode 198 on Tuesday, March 16th, 2010.
So welcome back and again one more solo venture with our podcast. We’ll see, one day we’ll have Suzana back here. Today I want to start walking through a little bit of the charitable remainder trust and some of the charities issues that we’ve been dealing with. But first, I forgot to mention in our last podcast and I wanted to remind everyone today because by the time this gets launched into the Internet, it will be much more fine-tuned. But we have opened our new web page. We’re very excited about it. We think we’ve accomplished what we wanted to, and that is, an easy access to the five core elements of our web page. That’s blogging, the videos and our newsletter, our Hull & Hull TV and we think it’s set up a little easier to get to those five core components. And we think we’ve added the right amount of content where we thought we were a bit light. So we’re really excited about it. So it’s hullandhull.com. We encourage you to take a look at it. And also encourage you to give us any feedback. You can e-mail me at email@example.com or give any feedback you can. There’s a 1-800 number on the web page if you like to phone in or e-mail in. We think it’s actually a little easier even to that extent to give us feedback.
But we want to now let’s come back to what is our focus of today, and that is the discussions of charitable giving and planned giving in the context of estate planning. And we have tried to focus a little bit of our attention on this concept of the power to encroach because we have been… hopefully we’re gonna walk through with some detail and dignity…the whole concept of charitable remainder trusts. And in a charitable remainder trust arrangement, the power to encroach is very frowned upon. It is not looked at by CRA, by Revenue Canada, as something that should be included necessarily in that arrangement. And let me tell you why. We’ve talked about what power to encroach means and why we wanted to do that was we wanted to make sure we understood that fundamental concept when we come back to the charitable remainder trusts. And why I say that is this. The way a charitable remainder trust works is that a full on gift must be made. That gift must be complete in and of itself in the trust arrangement to enjoy the tax benefits of the charitable remainder element of it.
So we’ll talk about the tax benefits in another podcast but the concept is this: you create a charitable remainder trust, you put it in…you put an asset into that trust with the interest income going to family, people, alive until a certain period of time we call the date of division. And the capital going to a charity of…maybe there’s multiple choices on there, but a group of or a single charity. The important thing here is, is that the power to encroach which we would typically see in the spousal trust arrangements, doesn’t exist. It’s not an option basically in a charitable remainder trust because Revenue Canada, CRA, says you have to give it away to enjoy the tax receipt or tax benefit immediately. And so what CRA has made it clear is that CRA’s typically of the view that trustees of a charitable remainder trust, if they have the power to encroach, then the settlor, your client, who has made this trust up, hasn’t actually gifted anything away, hasn’t given it all away for the ultimate benefit of the charity. And so therefore the charitable receipt is not entitled to be issued. And I think that’s important because when we come back to the law of gifting we see it a lot in our estate planning fights and that is, when a gift isn’t properly documented what happens.
And let’s step back and look at that question of gifting generally. And what will often happen is you will have someone who will, mother will say I’ve decided I want to give you $100,000 daughter Betty. And daughter Betty says, thank you very much and she takes the $100,000. And the mother dies 3 months later and the brother says, that wasn’t a gift. You held it on trust, you held it…whatever claims you’re gonna have to make, they’ll make. If mother had gifted it by a deed of gift, had gone to see a lawyer and created a deed of gift to make sure that $100,000 did indeed go to daughter Betty and it was properly documented, the gift is complete.
So in the charitable remainder trust scenarios, the same thing. We can’t set up a trust, expect to avoid…to enjoy some tax receipts from a charitable standpoint and yet sort of half give the asset. You have to fully gift the asset before you could enjoy the benefits. Now, it’s interesting because we are giving the capital fully but we’re not giving the interest that’s coming off that capital. So CRA says that’s okay as long as you don’t have in your clause a power to encroach. As long as you don’t have the right to go at that capital in the trust document, CRA says that’s a gift. You have documented a pure gift. Mom gives it to the World Wildlife Foundation fully that way and the only trickle off effect is the interest income that’s going out to the children during their lifetime with a fixed date of division, a closing date as to when the interest income will end. That’s typically, often the case, say when the children or grandchildren have passed away. You can pick your date of division as you see fit.
So I think that’s a wonderful thing about charitable remainder trusts and why I love this whole area of charitable giving is that it starts to bring together all of these different trust concepts: power to encroach, the concept of a trust, the concept of the tax treatment of a trust. And it meshes them altogether and gives us a tangible illustration as to what these very fundamental legal concepts mean from a practical standpoint. We’ve got our example of where these things all start to meld together and where we can see any way from our perspective (a) the benefits of it but (b) how we can keep the puzzle together.
So I just wanted to…we’re gonna talk and we can talk a little bit about some of the nuances in the whole area of the power to encroach but I think it gets a little bit more complicated and actually a little bit more in depth than it’s worth for the purposes of this podcast, as long as we’ve got the fundamentals.
So again I remind you please feel free to check out our new web page. It’s got a couple glitches and hopefully they’ll have them all worked out by the time you’re looking at it but we’ve enjoyed really re-focusing our whole media presence on the web page. We have a ton more digital on there and lots more video content and we’ve really, I think, segregated our blogs and our newsletters and our video content in an easier and much more user-friendly way. So as I say, welcome any feedback on this and we look forward to hopefully the next podcast…I keep promising this… but one day Suzana will be back for Hull on Estate and Succession Planning. And thank you very much for your attention.
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