Tag: charitable gifts
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.
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 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.
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.
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Ian Hull and Celine Dookie
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.
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Apart from the moral obligation to benefit family discussed in yesterday’s blog, a testator may feel an ethical obligation to benefit charity. This is another way of leaving a legacy. If the testator performed volunteer work for a specific charity, a testamentary bequest can be seen as a natural extension of a lifetime commitment to a cause.
Of course, the groundwork for a legacy may be laid outside of the testamentary context. For example, consider the inter vivos donations made by Michael DeGroote to McMaster University leaving a legacy not only of financial support but by the naming of McMaster’s business and medical schools in recognition of Mr. DeGroote’s generosity.
Testators who were generous to charities in their lifetime often will similarly wish to benefit those same charities in their Wills. Indeed, a charitable bequest in a Will to a charity to which the testator had a history of donating is useful evidence in support of the validity of a Will. Conversely, a significant charitable bequest to an entity entirely unknown to the testator may (in certain circumstances) raise a red flag.
David M. Smith – Click here for more information on David Smith.
The Leona Hemsley’s estate saga continues.
Last month, three animal protection groups filed a petition requesting that the court appeal a previous decision that allowed the trustees of Helmsley’s estate sole discretion to determine how charitable trust funds would be distributed. Rick Bickhram’s previous blog provides a background to this decision.
The animal rights groups allege that Helmsley’s money is not being spent the way she intended and contrary to her expressed intentions to care for the welfare of dogs. The groups object that only $1 million of the $136 million paid out to charitable organizations this year went to organizations that assist with animal welfare. A New York Times article outlines some of the hurdles the animal rights groups face. We will see how this new development plays out.
Of course, Helmsley’s Will caught the media’s attention because she left $12 million to her Maltese, Trouble. Yet, Trouble’s fortune seems small compared to Gunter III, a German Shepherd who was left $80 million by Karlotta Liebenstein, an Austrian countess. If you think that’s unusual, this blog post outlines these two dogs’ fortunes and some additional “interesting” Will bequests. Estate law is almost never boring.
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Previously, David Smith has blogged on the dispute between the Beaverbrook Art Gallery in Fredericton, New Brunswick and the Beaverbrook U.K. Foundation with respect to the ownership of the paintings and sculptures owned by the late Lord Beaverbrook. Click here to read about the background to this dispute and here to read about the costs awarded to the gallery.
You may recall that the arbitrator, retired Supreme Court of Justice Peter Cory awarded ownership of 85 out of the 133 paintings to the gallery. Justice Cory found that that artwork conveyed prior to the gallery opening were irrevocable gifts. In his decision Justice Cory referenced, amongst other evidence, newspaper and media articles commissioned and authorized by the late Lord Beaverbrook as evidence of Lord Beaverbrook’s donative intent.
In a Notice of Appeal, the foundation accuses Cory of being biased against them throughout the hearing. Lawyers for the gallery has called the appeal baseless and state the accusation of bias were only made after the release of Cory’s decisions and have asked for the appeal to be dismissed. You can read the factum of the gallery on their website. .
At the beginning of the arbitration process both sides agreed to an appeal mechanism. Three former judges from three different provinces will hear an appeal of the arbitration decision of Justice Cory. Justice Coulter Osborne of Ontario was chosen by the gallery. Justice Thomas Braidwood of British Columbia was chosen by the foundation. Those two judges chose Edward Bayada, former justice of the Saskatchewan Court of Appeal to chair the panel. The panel will begin to hear arguments beginning in September 22, 2008.
With the foundation already ordered to pay the costs of arbitration, it will be interesting to see how costs are decided this time around.
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Listen to Applying for Probate
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the applying for probate. They discuss some of the ways that estate administrators can simplify the process.
I am currently attending Osgoode Professional Development’s Fifth Annual Intensive Wills and Estates Workshop which has considered, among other things, common drafting errors and how to avoid them.
When it comes to charitable gifts, a solicitor should confirm the information the testator provides to them. A testator may misname a charity or not know that the charity is no longer in existence. The solicitor drafting the clause should ensure that the correct and exact name of the charity is used.
They may want to refer to a directory, such as the Canadian Donor’s Guide or the searchable charities database available on Canada Revenue Agency’s website, http://www.cra-arc.gc.ca/tax/charities/online_listings/canreg_interim-e.html. It is also important to note for tax purposes, the differences between not-for-profit organizations and registered charities.
For lesser known charities, a solicitor may want to include the registry number of the charity or contact the organization directly to determine how the charity should be named in the testamentary gift.
The solicitor may also want to discuss with the testator what will happen if the named charity is no longer in existence at the time of the testator’s death. Will the charitable gift lapse or will there be a gift-over to an alternate charity? Including these types of instructions in the clause may prevent the need to later on seek directions from the court and attempt to have the gift applied in accordance with the cy-pres doctrine.
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Considerations Regarding Testamentary Trusts and Charitable Gifting Issues – Hull on Estate and Succession Planning Podcast #88
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss considerations that must be taken into account while preparing Testamentary Trusts and issues surrounding charitable gifting.