Tag: charitable donation

26 Feb

Can a Charitable Gift be Revoked by an Unsatisfied Donor?

Ian Hull Estate & Trust, Litigation Tags: , , , , 0 Comments

Once a donor has agreed to donate funds to a charitable institution, are they entitled to have any input as to how those funds are spent? Does that donor have any recourse if their funds are not being spent the way they envisioned? Faas v. CAMH, 2018 ONSC 3386, 2019 ONCA 192 provides some insight regarding these questions.

Facts

At the direction of its principal, Andrew Faas, the Faas Foundation agreed to donate $1 million to the Centre for Addiction and Mental Health and its fundraising arm (collectively “CAMH”). The funds were to establish a mental health program entitled “Well@Work”. Accordingly, Mr. Faas’ payments were to be made in installments of $333,000 each year for the next three years.

Mr. Faas signed a Donor Investment Agreement (the “DIA”) which outlined a proposal for the program. The DIA also provided that an annual status report was to be provided to Mr. Faas. Nearly one year into the development of the program, Mr. Faas informed CAMH that he was not satisfied with the program’s progress, the extent of reporting or the expenditure of the donation. The parties reached an impasse with regards to these matters and Mr. Faas refrained from making the remaining two payments. He also requested that CAMH forward any money not spent on the first installment to another Canadian agency. However, all of the money for the first year had already been spent by CAMH on the development of the program.

In response, Mr. Faas commenced an application based on section 6 of the Charities Accounting Act which provides:

(1) Any person may complain as to the manner in which a person or organization has solicited or procured funds by way of contribution or gift from the public for any purpose, or as to the manner in which any such funds have been dealt with or disposed of.

. . .

(3) Wherever the judge is of opinion that the public interest can be served by an investigation of the matter complained of, he or she may make an order directing the Public Guardian and Trustee to make such investigation as the Public Guardian and Trustee considers proper in the circumstances.

The Decision

The Ontario Superior Court of Justice found that there were no grounds on which to order the Public Guardian and Trustee (the “PGT”) to conduct an investigation because there was no identifiable public interest. Furthermore, no mischief was identified and nothing in the records indicated that CAMH had mismanaged the funds.

Justice Morgan stated that inquiries under the Charities Accounting Act should not be initiated lightly and that they should not “simply be for the sake of meddling.” They must only be invoked when real mischief to the public at large exists.

Mr. Faas’ complaint was not that CAMH had failed to use the donation for their own charitable objectives but that they did not use their donation in a manner that conformed to Mr. Faas’ personal vision. This did not go against public interest, but rather a private one.

The Ontario Court of Appeal agreed with the decision of the Ontario Superior Court of Justice and dismissed the appeal.

Concluding Thoughts

Faas v. CAMH emphasizes that while an unsatisfied donor does have a potential recourse of asking the PGT to conduct an investigation under the Charities Accounting Act as to how their funds were spent, an investigation will not be initiated without some evidence of mismanagement. As such, once a donor has agreed to make a donation, and as long as the charitable organization is not mismanaging the funds, the donor cannot retract their donation simply because the organization is not strictly adhering to the donor’s vision.

Thanks for reading!

Ian Hull and Celine Dookie

13 Feb

A  Notable Legacy

James Jacuta Estate & Trust, General Interest, In the News Tags: , , , , , 0 Comments

This Sunday February 16, 2020 the NBA All-Star game will be played in Chicago. It is estimated that seven million people will watch that one game, and that about 450 million people are involved with basketball around the world annually.  Forbes magazine has estimated the value of the 30 NBA teams at over 50 billion dollars with the Toronto Raptors valued at 1.7 billion.

On December 21, 1891 the game of basketball was invented by Canadian James Naismith. He was born on November 6, 1861 in Almonte Ontario about 50 kilometers west of Ottawa. Yet, the inventor of the game, James Naismith, never profited from any of this. In fact, he was generally in favour of advancing good values through sport and not profit. His estate did not profit either. However, his original two-page rules of the game of “Basket Ball” from 1891 were passed down to his family.

On December 10, 2010 the rules were purchased at Sotheby’s auction for a record 4.3 million dollars by David and Suzanne Booth.  The couple then donated the original rules of the game of “Basket Ball” to the University of Kansas, where James Naismith had been director of athletics until retiring in 1937 at the age of 76. He died on November 28, 1939 at his home in Lawrence Kansas. The family heirs of James Naismith took the proceeds from the sale of the original rules and donated the money to the Naismith International Basketball Foundation charitable organization.

A notable legacy in a succession of events. The game of life played well, starting with James Naismith, then David and Suzanne Booth, and then the family and heirs of James Naismith!

Enjoy the game!

James Jacuta

17 Dec

Restricted charitable gifts: Be careful what you wish for

Arielle Di Iulio Charities Tags: , , , , , , , 0 Comments

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[1], 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!

Arielle Di Iulio

 

[1] Everything you need to know about Canada’s charities and nonprofits (August 20, 2018), online: Imagine Canada <https://www.imaginecanada.ca/en/360/sector-stats>

23 Nov

Department of Finance’s Response to Tax Amendment Concerns

Ian Hull Estate Planning Tags: , , , , , , , , , , , 0 Comments

In just over a month, starting on January 1, 2016, a number of amendments to the Income Tax Act will be coming into effect. These changes have been discussed on this blog before. On November 16, 2015, the Department of Finance issued a letter addressed to the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada, the Conference for Advanced Life Underwriting, and the Technical Tax Committee of STEP Canada. The purpose of the letter was to address the submissions of these organizations regarding certain amendments to the income taxation of trusts and estates, particularly concerns with respect to the income tax treatment of certain trusts subject to deemed realization on the death of a beneficiary.

With respect to tax deferral for alter ego trusts and spousal trusts, the new rules in subsection 104(13.4) provide that, upon death of the beneficiary, all the trust’s income for the trust’s taxation year must be included in computing the beneficiary’s income for the beneficiary’s final taxation year when the trust’s year ends (which will be the end of the day on which the beneficiary dies). Subsection 160(1.4) then makes the trust jointly and severally liable with the beneficiary for the portion of the beneficiary’s income tax payable due to inclusion of the trusts’ income.

There was an issue raised with respect to concerns that the amendments may apply in some cases with unfair and unintended results, within which were two sub-issues.

The first issue was the possibility that the income tax liability falling to the beneficiary will be ultimately borne by the beneficiary’s estate, even though the trust’s property, including any income, will be enjoyed by the trust’s beneficiaries, in some cases to the exclusion of the estate’s beneficiaries.

The second issue was the possibility that charitable donation tax credits could become stranded in the trust. If a trust makes a charitable gift of property after the death of the beneficiary, and the trust’s income is then deemed to be included in the beneficiary’s income, the trust will have no income against which to deduct any donation tax credit.

The Department of Finance, in discussions with the organizations to whom the letter was addressed, came up with an option to respond to these concerns. It was noted in the letter that the suggested solution would involve amending paragraph 104(13.4)(b) so that it would not apply to a trust in respect of the death of a particular beneficiary unless several factors are met, including that the beneficiary’s graduated rate estate and the trust jointly elect to have the paragraph apply. Accordingly, if no election is made, the tax liability for the trust’s income would remain with the trust.

With respect to the “stranding” of donation tax credits, the Department of Finance noted that the option above would include provision for a trust to be permitted to allocate the eligible amount of a donation made by the trust after the beneficiary’s death to its taxation year in which the death occurs.

Nothing has been implemented with respect to these issues or suggested options yet, nor is there a guarantee that the amendments will be implemented. However, the Department of Finance appears open to discussion and to working toward a solution that addresses the concerns raised.

Thanks for reading.

Ian Hull

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