With giving season upon us, the philanthropic impulse is stronger than ever. As prospective donors craft their charitable giving plan, they will endeavour to make their charitable contributions as impactful and rewarding as possible. Achieving this philanthropic goal requires careful consideration of the multitude of charitable giving options available to donors.
With more than 85,000 registered charities in Canada, there is no shortage of organizations to whom a prospective donor can donate. In addition, there are a variety of ways in which individuals can donate to their charity of choice, as discussed by Suzana Popovic-Montag in her blog, “Giving money to charity? Know your options to maximize your impact”.
An important consideration that can influence how and to whom a person chooses to donate is what restrictions, if any, they wish to place on their gift. Accordingly, as one evaluates the charitable giving options available to them, they should think about whether they want to make a restricted or unrestricted gift.
Unrestricted and restricted gifts
An “unrestricted” charitable gift refers to a gift made towards a charitable purpose that is free from any restrictions or limitations imposed by the donor. Unrestricted funds can be used by the donee charity in any way so long as the use of the funds supports the general charitable purposes of the organization.
On the other hand, donors may opt to restrict how their donations are used by the donee charity. These types of gifts are referred to as “restricted” or “donor-restricted” charitable gifts. As the name suggests, a donor places restrictions, conditions, directions or other limitations on their gift which constrains the use of the funds to a particular purpose, program, or project. In essence, a restricted gift can only be used for the specific charitable purpose to which it is devoted. Thus, restricted gifts have the effect of fettering the charity’s discretion in deciding where the donated funds will be allocated.
This article provides a more detailed comparison of unrestricted and restricted gifts: http://www.carters.ca/pub/article/charity/2006/tsc0421.pdf.
Charities have tended to prefer unrestricted gifts since their flexibility allows the charity to apply the funds wherever they are most needed. However, charitable organizations are increasingly recognizing that prospective donors may want a greater say in their charitable giving and might be inclined to give more if they have some certainty as to exactly how their gift will be spent. Restricted gifts can therefore be a useful tool to achieve one’s personal philanthropic goals, as well as to increase overall charitable giving.
Making a restricted gift
There are many ways in which a donor-restricted charitable gift can go awry, such as where:
- the precise restrictions imposed on the gift are ambiguous and the charity consequently administers the funds in a way the donor did not actually intend;
- the donor has given money to a very specific program or project within a charity which is not in need of funding or has been discontinued, and the surplus funds cannot be used for any other purpose; and
- the charity amalgamates with another organization, or dissolves altogether, and transfers its remaining assets (including the restricted funds) to another charity that has a sufficiently different charitable purpose such that the organization can no longer give effect to the gift’s designated purpose.
In light of the above, there are certain precautions that a prospective donor should consider taking to ensure optimum impact of their restricted charitable gift.
A donor should refer to a charity’s gift acceptance policy for guidance on what types of restricted gifts a donor can give to the charity. In particular, a gift acceptance policy will usually prescribe what purposes or uses a donor can restrict their funds to. Gift acceptance policies may also specify what language will be accepted to confirm the donor’s charitable intent and what procedure will be followed when the donor’s charitable intent is unclear or cannot be carried out. For larger gifts, it is also advisable to meet with a representative from the potential donee charity to determine whether the organization’s gift acceptance policy coincides with the donor’s specific philanthropic goals.
Donation agreements and testamentary documents can also be drafted to contemplate scenarios in which the designated purpose of a restricted gift cannot be brought to fruition. Specifically, donors may want to consider adding to these documents a contingency that permits their gift to be used for alternate charitable purposes, or permits the donee charity to vary the restriction to a use that most closely corresponds with the donor’s original charitable intent.
Thanks for reading and happy holidays!
We are a society of “stuff.” Furniture, electronics, collectibles and other memorabilia. You name it; chances are, something along those lines is gathering dust in your home or that of a close family member. This poses an inevitable question for those inching towards retirement age and who are considering downsizing their living arrangements – what are they to do with all of their “stuff”?
A recent article in Forbes magazine suggests that, despite the ostensibly good intentions of prospective retirees, their children will only tolerate so many personal effects being pawned off on them. For many millennials, the reality is that living space is a premium, especially for condo dwellers in the city. Absorbing an enormous credenza or an old television into already cramped quarters is simply not feasible for most. Those looking to downsize in advance of retirement may therefore have to look outside their immediate family for relief.
Prospective retirees have several options at their disposal to alleviate the stress and anxiety that accompany the moving process. A number of well-known charitable organizations, including the Salvation Army and Habitat for Humanity, among a slew of others, assist in receiving and repurposing donated furniture, electronics, and other personal effects. Contributing to these organizations ensures that less fortunate individuals and families will be able to enjoy these effects for years to come, while simultaneously providing a solution to the retiree’s downsizing conundrum.
Junk removal services are another alternative that have exploded in popularity in the last decade or so. These companies will typically provide the labour to arrive at your doorstep with a truck in tow, removing unwanted personal items for a small fee. Many of these companies will, in turn, donate collected items to charitable organizations or other entities to reduce waste and ensure peace of mind the prospective retiree.
If downsizing is on your mind in the near future, consider these options to ensure your household items are given a second life. Your children will be most appreciative!
Thanks for reading.
Ask anyone who has cleared out the home of a loved one who has passed away or moved to a care facility, it can be a tough task.
On top of the emotional burden of sorting through family items, and determining what should be kept or discarded, there is the physical burden of simply dealing with so much stuff. It can overwhelm just about anyone. This article provides some good ideas on how to tackle the project – one that can often take a year or more depending on the circumstances.
But here’s a more important question: have you done anything to lessen the burden for others when your home is eventually cleared out? The sad truth is that most of us are surrounded by stuff that will end up in dumpsters when it’s our turn to move. The article noted above even outlines “skip” or dumpster strategies. Why do we continue to hold on to things that have no day-to-day use or role in our lives and will have no use to others when we die?
Ditch your junk
The answer to that question is simple: other than those who have a hoarding disorder, most of us accumulate and keep stuff simply because it’s easier to let the status quo prevail rather than undertake the work of clearing things out. And if we do clear things out, it’s often related to an event that forces our hand, such as downsizing from a large home to a condo or apartment.
Let me throw out a challenge: if you’re at that post-kids-at-home stage of life, act now to clear out your stuff so that others won’t have to when it’s your time to move on. If your adult children cherish certain items and kick up a fuss about throwing things out, have them take the items to their homes. And take a hard, honest look at what items you and your family will likely never use again – and get rid of these items today.
It doesn’t have to go into dumpsters. Charities will take a wide range of items, including clothes, bedding, toys, games, small appliances, sporting goods, books, electronics, housewares and furniture. For example, both the Ontario Federation for Cerebral Palsy and Diabetes Canada have home collection programs.
Yes, it takes some work, but there are important benefits to you as well as your family in clearing out your junk. You not only gain peace of mind in knowing you haven’t left the hard lifting to others, you can enjoy your decluttered home for many years to come.
Thank you for reading,
This recent article in the Globe and Mail by Rob Carrick caught my eye, since charitable giving is often a component of estate planning.
The article highlights some statistics on charitable giving in Canada, based on a recent study and data from Statistics Canada. Some notables: while 70% of Canadians feel a sense of personal responsibility for helping achieve positive change in the world, just four in 10 donate money on a regular basis, and just 21.4% of tax filers in 2014 claimed the charitable donation tax credit.
It’s clear that wrapping an organization in the blanket of a great cause is not enough to gain people’s trust when it comes to charities. Only half of study participants agreed that charities can be trusted with the money people donate to them.
Choosing a trustworthy charity (one that’s well-run, with a high percentage of donated dollars going to further the cause rather than to administrative and fundraising expenses) is always important – but why is that importance magnified when it comes to estates and charitable giving? There are a couple of reasons:
- First, even if someone doesn’t leave anything to charity in their will, their family may well suggest a donation to a charitable cause in their memory. This could result in dozens (if not hundreds) of donations to a specific charity. The family will want the chosen charity to be both reflective of the values of the deceased family member and a good charity to donate to in terms of deeds done for dollars received. The family is really directing other people’s money, and they will want to ensure that money goes to a good and trustworthy organization.
- Second, estate gifts are often much larger than gifts given during a lifetime. So, to put it simply, the stakes are higher. If you leave a substantial gift to a charity in your will, you want the satisfaction of knowing that your money will be put to good use.
In this digital age, the information you need about charities is at your fingertips. Organizations such as CHIMP provide information on how charities spend their budgets. The information is drawn from the annual filings that charities must make to the Canada Revenue Agency. You can even donate directly to charities from the CHIMP site.
There are hundreds of great charities out there – and that are deserving of your support. If you want to make charitable giving one of your priorities, make sure it’s a well-considered choice.
Thanks for reading … Have a wonderful day,
The Global Private Wealth Guide includes a chapter for nineteen different countries and features practical information regarding tax issues, succession law, the status of trusts, business and charitable planning, and the role of fiduciaries in each jurisdiction. The Guide also features a profile page for each country, in which general information related to relevant business practices is summarized.
The Private Wealth Guide is a helpful tool for lawyers assisting clients who may hold property or business interests in multiple jurisdictions. Among the interesting features of the website for the Guide is the option of comparing the treatment of each issue between two or more jurisdictions. For example, it offers the opportunity to obtain quick and reliable information regarding any differences between the treatment of marital property in Canada and the United States.
A complete electronic copy of the guide is available here. A link has also recently been added to the resources section of our website.
Thank you for reading and have a great weekend.
With the Stanley Cup Finals in full swing, I thought it would be interesting to re-visit the history surrounding the trust that holds the Stanley Cup.
According to this article, upon Lord Stanley of Preston being appointed Governor General of Canada by Queen Victoria in 1888, both him and his family became enamoured with hockey. So much so, that he created the ‘Dominion Hockey Challenge Cup’ to be held year to year by the championship hockey team in the Dominion of Canada.
To ensure the Cup remained true to Lord Stanley’s intention, he settled a charitable trust, with the Cup being the trust property. He appointed two trustees to administer the trust, and set out these initial trust terms:
- The winners shall return the Cup in good order when required by the trustees so that it may be passed to future winning teams;
- Each winning team, at its own expense, may have the club’s name and year engraved on a silver ring fitted on the Cup;
- The Cup shall remain a challenge cup, and should not become the property of one team, even if won more than once;
- The trustees shall maintain absolute authority in all situations or disputes over the winner of the Cup; and,
- If one of the existing trustees resigns or drops out, the remaining trustee shall nominate a substitute.
So, to answer the question – the NHL does not own the Cup. Nevertheless, the NHL was able to reach an agreement with the trustees in 1947 where, amongst other things, it obtained exclusive rights to award the Cup.
However, as a result of legal proceedings commenced by a recreational league hockey team during the last NHL lockout, the agreement was varied to allow the trustees to award the cup to a non-NHL team should the NHL fail to organize a competition.
Other sports related blogs can be found here:
While direct donations of cash or securities are still king when it comes to charitable giving in Canada, there are many other ways to donate. If you’re considering a larger gift, it pays to look at some alternatives.
A little bit of planning and a look at different options ensures that charitable gifts are made in the most tax- effective manner possible, are directed to the charities you most want to support, and are best suited to your financial situation and needs.
Here are some options to consider.
A charitable gift made in your will can be claimed against up to 100% of your net income on your final two lifetime tax returns. If the bequest is too large to claim on the final return, the surplus can be carried back to the previous tax year. There are several types of bequests possible:
- Specific bequests: an amount or specific piece of property paid out before any residual gifts
- Residual bequests: a share or percentage of the residue of estate
- Contingent bequest: the naming of an alternate charitable beneficiary in case the terms of an original bequest can’t be met
- Bequest subject to a trust: a trust established at death that typically provides lifetime income to one or more named beneficiaries, and a future gift to one or more charities.
Bequests can be tricky if not executed properly. This article provides details on the key pitfalls to avoid:
There are several ways that you can make a substantial but affordable gift using life insurance.
- Buy a new life insurance policy and name your charity as the owner and beneficiary. The premiums you pay qualify for a charitable tax receipt.
- Donate an existing policy to a charity. You’ll receive a charitable tax receipt for the fair market value of your life insurance policy.
- Name a charity as the beneficiary of an existing policy. Your estate will receive a charitable tax receipt when the proceeds are paid to the charity.
Private charitable foundation
A private charitable foundation is a trust or corporation that you establish and operate for charitable purposes. It’s a permanent institution – carrying your name or legacy, or that of a loved one – through which charitable work may be funded. Because of the costs of establishing and operating a foundation, you likely need initial funding of several hundred thousand dollars to make the structure worthwhile.
Private charitable foundations can be complex structures to establish and administer, so make sure you rely on professional advice for your foundation’s creation and operation.
Donor-advised funds are a flexible and cost-effective alternative to establishing a private charitable foundation.
You start by donating a lump sum amount – typically $10,000 or more – to a charitable gift fund administered by either a charity or a financial institution. Like a private charitable foundation, you receive a tax credit for the full amount donated, up to 75% of your net income for the year. Any excess amounts can be carried forward for up to five years to generate tax credits in those years. Each year, you direct to what charities you want grant money given and in what amounts.
Here’s a detailed comparison of private charitable foundations versus donor-advised funds:
There are a number of other planned giving options as well, from beneficiary designations of an RRSP or RRIF, to charitable remainder trusts, to charitable gift annuities.
But if you weigh all your options, and decide to make a simple direct gift, the Canada Revenue Agency’s charitable donation tax credit calculator is a great way to get an estimate of the tax impact of your donation:
Thanks for reading,
#TogetherWeAreStronger: The Merger of the Canadian Cancer Society and the Canadian Breast Cancer Society
According to The Globe and Mail, two of Canada’s largest cancer charities officially merged on February 1, 2017, being the Canadian Cancer Society and the Canadian Breast Cancer Foundation. This merger was reported to be a result of decreasing donations which threatened the continuation of decades-long research funding to hospitals and universities. The merger is designed to cut costs by eliminating overlapping operations between the two charities.
Since the merger, the new charity will operate under the name of the Canadian Cancer Society, and subsequent mergers with additional charities of similar purpose are already on the horizon. To paraphrase the Chairman of the Canadian Cancer Society, Robert Lawrie, a Toronto-based mergers and acquisitions specialist, informed The Globe and Mail that there are about 300 cancer charities in Canada with the similar cost and revenue challenges.
It turns out that more than 10% of the total annual funding for all cancer research in Canada comes from the Canadian Cancer Society and the Canadian
Breast Cancer Foundation. Decreasing donations to the Canadian Cancer Society have led the charity to dip into its reserve funds in order to cover program spending and operating expenses. Accordingly, it’s reserve fell from $151 million to $76.1 million between 2012 and 2016. Similarly, the reserve of the Canadian Breast Cancer Foundation fell from $36.1 million to $22.3 million between 2012 and 2016.
Donor fatigue and other competing causes (such as the Fort McMurray fire) were cited as possible reasons for the decrease in donations.
As an estate planning tip, it is always prudent to review Wills that were drawn up in the past to ensure that gifts to a charitable organization are properly named and that the intention of the testator remains the same notwithstanding the possibility that the operations of the named charity may have change over time. Otherwise, consideration should be given to whether the Will should be changed.
To donate to the new Canadian Cancer Society click here.
Thanks for reading this week!
Section 31 of the Substitute Decisions Act (“SDA”) states that an attorney for property “has power to do on the incapable person’s behalf anything in respect of property that the person could do if capable, except make a will.” An attorney for property also has the power to make gifts and loans to the grantor’s family and friends, as well as charitable gifts (SDA s37(3)).
There are strict limits, however, to how generous an attorney may be. The SDA includes guiding principles with respect to making gifts: the attorney cannot deplete the grantor’s property to the extent that there may not be enough to satisfy the needs of the grantor him or herself, during the grantor’s lifetime. The gifts or loans must also only be made if the attorney has a reason to believe, based on any expression the grantor might have made while capable, that the grantor would have made these gifts or loans if capable. Charitable gifts have further restrictions.
In addition to the prohibition against making a will, an attorney for property has an obligation to find and read the grantor’s will (SDA s33.1). Unless necessary to perform one’s duties to the incapable person, the attorney must not dispose of property subject to a specific testamentary gift, although this prohibition does not apply to a testamentary gift of money (SDA s35.1). The court highlighted the importance of the will in Weinstein v. Weinstein (Litigation Guardian of), stating obiter that s 33.1 of the SDA is “indicative of the importance the legislators attach, appropriately, to the will of an incapable person, in view of the permanent character of the will if the incapable person does not regain capacity.” Taken together, these provisions can be read to support the proposition that an attorney does not have the authority to dispose of assets in a way that undermines the grantor’s estates plan.
The case law on the subject of an attorney’s ability to make gifts is limited. Moreover, the cases largely deal with relatively small gifts. While not directly related to the issue of gifts made by an attorney on behalf of a grantor, the court in Banton v Banton held that it is improper for an attorney to deprive the grantor of his or her testamentary freedom by making inter vivos transfers. The attorneys in this case made a large transfer to a trust to protect the grantor from a predatory marriage, which is both allowed and an appropriate action for an attorney to take. However, the secondary beneficiaries of the trust were the grantor’s children, which the court held functioned as a will substitute, which is an inappropriate use of the power of attorney.
In summary, gifting must be done carefully and in a manner that would survive judicial scrutiny. An attorney should not make gifts if they represent so large a proportion of the estate that the attorney has substituted the testamentary intentions of the grantor with their own discretion. An attorney should also not make any gifts if the grantor was not in the habit of making gifts to friends and family or had expressed a contrary intention while capable.
Thanks for reading,
This week on Hull on Estates, Natalia Angelini and Umair Abdul Qadir discuss life insurance in the context of two articles, namely, “That’s Life Insurance” by Michael Grob, published in the June 2016 edition of Step Journal (http://bit.ly/29Yoc3Z) and “Charitable Donations: A Summary of Tax Considerations” by James M. Parks, published in the Canadian Donors Guide 2016/17 (http://bit.ly/29SAkAF).
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