Tag: charitable trusts
In 2014, a Toronto-based company successfully raised $1,235,389 (USD) of its $48,000 goal on Indiegogo for its wireless speaker system promising better-than-stereo sound. More recently, the website Gofundme provided the platform which allowed the parents to a 4 year old girl to raise $2,026,470 (USD) to help their child receive a potentially life-saving therapy trial.
Hardly a week goes by without a story on the success of yet another crowdfunding campaign. In what began as an alternative financing model, modern crowdfunding as it exists today has grown to become an extremely successful and potentially lucrative fundraising source. As a result, the legal question that has been raised is whether funds raised by means of crowdfunding constitute a trust, with all of the rights and obligations that this may entail.
The definition of a trust according to Black’s Law Dictionary is, “An equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership.” At first glance, this is precisely what many crowdfunding campaigns seek to do. The funds raised are often held by a third party for the benefit of another. However, determining who occupies which role within the trust relationship can be difficult to navigate.
There are four parties in most crowdfunding campaigns: the donors, the website provider, the campaign creator, and the beneficiaries. As a result, it is not entirely clear whether it is the website provider or campaign creator that acts as trustee and, if it is the website provider, whether they hold these funds in trust for the campaign creator or the purported beneficiary of the campaign. As each crowdfunding campaign can vary significantly with respect to its set-up and intended purpose, determining whether a trust relationship is present is an exercise to be undertaken on a case by case basis.
For instance, some crowdfunding campaigns offer rewards in exchange for meeting a minimum donation level. In this sense, it could be argued that these rewards constitute consideration and the relationship becomes contractual in nature. In other campaigns, the funds are raised for a charitable purpose and as such, may be qualified as charitable trusts. On the other hand, campaigns established by friends and family that purport to raise funds for their loved ones, seek to provide a benefit to a private individual, as opposed to a general purpose. It is often these cases that lead to questions surrounding whether a trust has been established, or, in the alternative, whether a gift has been made.
According to this paper by Professor Oosterhoff, the law has generally provided that funds raised for a specified object give rise to a trust. Accordingly, Oosterhoff’s answer is that it depends on what the intentions of the donor were. He suggests that we need to look specifically at whether the donors intended to establish a trust or whether their relationship to the other parties can be characterized as one of contract or agency.
If a trust is established, the person(s) receiving the initial funds (whether it is the campaign creator or website provider) may find themselves in a fiduciary relationship. Trust law creates a higher standard of care and imposes and bestows rights and obligations upon both the trustee and beneficiaries. As a result, those engaged with crowdfunding campaigns, in any capacity, should be alert to this possibility and act accordingly.
Thank you for reading.
In order for a trust to be valid, three certainties must be met: intention; subject matter; and objects. Often referred to as the ‘three certainties’ principle, stemming from the 1840’s English decision in Knight v. Knight, it is an ever popular blog topic on Hull & Hull’s Toronto Estate Law Blog. A recent decision out of the Ontario Superior Court of Justice revisits the importance of the certainty of objects principle notwithstanding the ‘worthiness’ of such a gift.
In Stoor v. Stoor Estate, the Applicant was the named beneficiary of a trust, which included a gift over provision, in his late mother’s Will. As the only child, the Applicant sought relief, in part, that the gift over provision found in the trust failed for uncertainty of objects.
Certainty of objects requires one to say with certainty whether any given individual is or is not a member of the class: Baden’s Deed Trust (No. 2) (Re).
Part XI of the Will directed the estate trustee to distribute the residue of the Applicant’s Trust,
“…following the payment of any outstanding debts, charges, taxes and expenses of the said Paul Stoor Trust, all the rest and residue of the said Paul Stoor Trust shall be paid to my Trustees for distribution to any and all worthy individuals and or causes who shall be alive or in existence at this time, as my Trustees may, from time to time, in their absolute and unfettered discretion consider advisable“.
In determining whether the gift over fails for certainty of objects, Justice Himel considered the SCC decision in Brewer v. McCauley which held that it is the testator, through their Will, that must dispose of their property. Accordingly, this cannot be delegated to the estate trustee, unless the gift is for charitable purposes, at which time the selection of the charities may be delegated.
A helpful summary on charitable trusts and the exceptions conferred to them, can be found at this Hull & Hull blog.
Notwithstanding the fact that the testator in Stoor Estate sought to benefit worthy individuals/ causes, Justice Himel provided case law and authority that ‘worthy causes’ or ‘worthy objects’ are not trusts for charitable purposes.
Therefore, it was held that the gift over to “…any and all worthy individuals and or causes” is void for certainty of objects.