You are the Estate Trustee of an estate in which the testator left a substantial portion of the residue to certain specifically named charities. The charities who are named as beneficiaries are well established large charitable organizations whom you have corresponded with directly. Such charities have retained counsel to represent them concerning their interests in the estate, and such counsel have in turn requested that you commence an Application to Pass Accounts regarding your administration of the estate.
In preparing the Application to Pass Accounts you turn your mind to who you should serve with the Application. Rule 74.18(3) of the Rules of Civil Procedure provides that an Application to Pass Accounts shall be served on “each person who has a contingent or vested interest in the estate“.
Although you are aware of the general supervisory role that the Office of the Public Guardian and Trustee (the “PGT”) has over charities in the Province of Ontario, as the charities in this instance are well established and represented by counsel, you question whether you need to serve the PGT in addition to the charities with the Application to Pass Accounts. It is, after all, the charities themselves who have a “contingent or vested interest in the estate“, and as the PGT and the charities would be representing the same financial interest you question whether it is necessary.
The requirement to serve the PGT with any Application to Pass Accounts where a charitable bequest is involved is established by section 49(8) of the Estates Act, which provides:
“Where by the terms of a will or other instrument in writing under which such an executor, administrator or trustee acts, real or personal property or any right or interest therein, or proceeds therefrom have heretofore been given, or are hereafter to be vested in any person, executor, administrator or trustee for any religious, educational, charitable or other purpose, or are to be applied by them to or for any such purpose, notice of taking the accounts shall be served upon the Public Guardian and Trustee.” [emphasis added]
The requirement to serve the PGT with any Application to Pass Accounts when a charitable bequest is involved as established by section 49(8) of the Estates Act exists in addition to the general requirement to serve all individuals with a “contingent or vested interest” as established by rule 74.18(3). To this respect, when a Will leaves a bequest to a specifically named charity, the Application to Pass Accounts must be served upon the specifically named charity as well as the PGT. Although from a practical standpoint the PGT’s active participation in an Application to Pass Accounts where a charity is representing itself is unlikely, with the PGT deferring to the charity to protect their own interest, the service requirements remain nonetheless, and both entities could in theory participate in the Application to Pass Accounts, and both could in theory file separate Notices of Objection to Accounts.
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I recently came across an interesting article, found here, pertaining to the creation of the Nobel Prize. As a result of a Will challenge, such a prestigious award almost never came to be.
The famed Swedish chemist, Alfred Nobel, is best known for inventing dynamite, as well as creating the ‘Nobel Prize‘ which awards annual prizes for outstanding work in the fields of physics, chemistry, physiology or medicine, literature, economics (as of 1969), and the promotion of peace. Nobel passed away without children on December 10, 1896 in San Remo, Italy, leaving a Will dated November 27, 1985.
Nobel executed his Will while in Paris (allegedly, without consulting a lawyer), with the majority of his wealth set aside for the establishment of a prize. Specifically, the Will required that after certain specific bequests, Nobel’s entire remaining estate was to be used to endow:
“…prizes to those who, during the preceding year, shall have conferred the greatest benefit to mankind. The said interest shall be divided into five equal parts, which shall be apportioned as follows: one part to the person who shall have made the most important discovery or invention within the field of physics; one part to the person who shall have made the most important chemical discovery or improvement; one part to the person who shall have made the most important discovery within the domain of physiology or medicine; one part to the person who shall have produced in the field of literature the most outstanding work in an ideal direction; and one part to the person who shall have done the most or the best work for fraternity between nations, for the abolition or reduction of standing armies and for the holding and promotion of peace congresses“.
The Will also stated the location of where the prizes were to be awarded, as well as the institutions who would be responsible for assigning these prizes.
Apparently, not only was the Will challenged by two nephews who sought to have the Will set aside (grounds unknown), but the creation of the Nobel Prize was met with disapproval by King Oscar II of Sweden on the basis that Nobel’s wishes were unpatriotic, and bypassed Sweden’s interests. Interestingly, the peace prize was to be awarded by the Norwegian Parliament at a time when friction between Norway and Sweden were at an all-time high. Further, the various institutions had not been consulted to ensure they were prepared to take on such a prominent role in assigning the prizes.
Notwithstanding this, the first Nobel Prize was awarded on December 10, 1901 in Stockholm and Oslo, with such prizes continuing to be awarded. Please see Jennifer Hartman’s blog, here, which further explored this interesting issue.
I recently tweeted this article from the Financial Post, which discusses different methods of charitable giving and the tax benefits associated with each method.
With respect to inter vivos charitable gifts, the methods include:
- A one-time gift using cash, cheque or credit card;
- Gifting publicly traded securities;
- A one-time gift using flow-through shares; and
- Gifting real estate or private shares.
One-time gifts using cash, cheque or credit card, which are familiar to most individuals, are the most common type of gift and are often gifts of smaller amounts. The other type of one-time gift, which makes more sense for larger gifts, is a gift of “flow-through shares”. These are a particular type of stock involved in materials or energy exploration that qualify for significant government credits. This option is better for individuals comfortable with advanced tax strategies and high taxable incomes. The two remaining inter vivos methods of gifting publicly traded securities, private shares, or real estate, are best for large gifts and result in tax benefits with respect to capital gains.
With respect to testamentary giving, the article discusses leaving money in a will, leaving money through an insurance policy, and donating RRSPs and RRIFs. Gifting money to charities via a bequest in a will is familiar to many individuals. However, there are often more tax-efficient ways to give, since money in your estate has been fully taxed and probated along the way.
The other methods of testamentary giving discussed are less common. Leaving money through an insurance policy involves paying premiums on a policy for which a charity is the beneficiary, and receiving a tax receipt on the payment of that premium. This method is said to often deliver a higher rate of return than investing and leaving money to a charity in your will. It also has the benefit of providing certainty with respect to the amount you will be donating to the charity. Donating your RRSPs or RRIFs has a benefit in that, often, the taxes on an RRSP or RRIF may be the largest tax liability on an estate. By donating the balance of the RRSPs or RRIFs, you can effectively use a charitable gift to cancel out the tax.
If charitable giving is something that you consider important, consider gifting in a tax-efficient way so as to gain a benefit yourself, and to provide even more of a benefit to your chosen charity.
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In Canada, assets that we inherit are not normally subject to inheritance taxes. However, in the United Kingdom, individuals are required to pay such taxes, which may become a barrier to distributing assets pursuant to the deceased’s wishes. If an estate is worth more than three hundred and twenty-five thousand pounds, including any assets held in trust and gifts distributed during the last seven years of life, inheritance taxes in the amount of 40% of the value of the estate will be payable. If estate assets include a valuable piece of art or other item of historical significance, it may not be possible for the estate to afford the inheritance taxes payable in order to effect the distribution of the asset to beneficiaries.
This week, an annual report was produced with respect to an initiative by the Arts Council of England called Acceptance in Lieu. The agency accepts donations of artwork to the public, and, in exchange, the taxpayer is granted an inheritance tax credit in the full amount of the fair market value of the item. The taxpayer, whether the estate or a beneficiary, can avoid paying inheritance tax on the specific asset, and also receive assistance in the payment of further inheritance taxes.
This year’s contributions through the Acceptance in Lieu scheme include a drawing by Raphael, the earliest known manuscripts by Charles Darwin, notes and letters written by John Lennon, and various other paintings, sculptures, and documents. The total value of this year’s donations was nearly fifty million pounds, a 57% increase from the previous report.
The writings of John Lennon were the first items to ever fall under the Cultural Gifts Scheme. This arrangement is now available with respect to assets that are distributed during one’s lifetime to effect a reduction in tax, calculated as a percentage of the value of the donated piece. The benefits were previously available only to offset inheritance tax after death.
The Acceptance in Lieu arrangement facilitates the acceptance from the deceased of other gifts that the estate or its beneficiaries could not otherwise have afforded to keep, while encouraging the donation of historically or culturally significant assets for public display.
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On death, many people hope to continue to provide not only for their partner and children, but also for one or more charities or non-profit organizations that have touched their lives.
Such a philanthropic goal can be both admirable and complex. From a legal standpoint, the approach taken must be honed and, to avoid hostility from relatives who would otherwise inherit a larger share of an estate, this intention must be clearly expressed.
In making a testamentary bequest to a charity, and in order to avoid litigation arising out of confusion, the names of the intended recipients should be clearly stated. Simply stating a general beneficiary such as ”the cancer society” is too broad, and could lead to different interpretations depending upon the life circumstances of the donor and the wording of the will.
It is also important to ensure that, if the bequest is to be used by a charity for a specific purpose, the purpose or purposes must be clearly delineated. If this is not done, the charity specified may simply use the funds provided for whatever purpose it sees fit.
Another possibility is the creation of a private foundation, which can engage in philanthropic activities on a perpetual basis in the name of the donor, by distributing the income derived from a large asset base provided to it in a will. Such an entity can allow a testator to have the estate offer ongoing support to multiple causes as an alternative to a one time disbursement of assets. A foundation can also be established while a donor is still alive and can continue to exist beyond death if it is provided for in the donor’s will. Additional benefits of establishing a foundation include tax advantages, ongoing family engagement and a legacy which can potentially exist in perpetuity. Perhaps the best known modern example of such a charitable foundation is the Bill & Melinda Gates Foundation.
There are, of course, many more considerations involved in charitable giving. When estate planning involves philanthropic goals, it is wise to contact an experienced estates practitioner in order to prepare the right document to ensure that admirable final wishes come to fruition.
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The May 25, 2012 issue of The Lawyers Weekly has several estates-related articles in it, one of which addresses charitable donations. The three objectives of this type of gifting are usually helping charities that have helped your family, to give back to the community or to distribute wealth. Some pointers the author gives are:
· tax considerations (and potential savings) are key, and professional help should be sought;
· ensure the charity is correctly named in the Will, so you can avoid conflicting claims and/or the cost and delay of court applications to correct the error;
· understand your gift eg. Donating a percentage of your estate rather than a specific amount gives the charity the right to a full accounting of the estate;
· for larger bequests, such as donations to universities to establish a scholarship, the discussion should start before death and the charity should be involved – there is usually a donor agreement (this helps avoid a common pitfall of leaving a donation to a charity that can’t be used);
· wealthy Canadians may choose to establish their own charitable foundation, often before death, which has the benefit of control as well as tax benefits; and
· communication is critical, so a family can establish their philanthropic interests – planning is a long-term endeavor that can involve future generations.
Thanks for reading,
Natalia Angelini – Click here for more information on Natalia Angelini.
"Relief of the aged, impotent, and poor people; maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities, repair of bridges, ports, havens, causeways, churches, seabanks, and highways, education and preferment of orphans, for or towards relief of stock, or maintenance for houses of correction, marriages of poor maids, supportation, aid, and help of young tradesmen, handicraftsmen, and persons decayed, relief or redemption of prisoners or captives, aide or ease of any poor inhabitants concerning payments of fifteens, setting out soldiers of soldiers and other taxes."
The above is the preamble to the Statute of Charitable Uses, passed by Queen Elizabeth I in 1601. Although more than 400 years have passed since the statute came into force, to this day these words play an important role in what organizations may receive the benefit of being officially registered as charities under the Income Tax Act.
In Commissioners for Special Purposes of the Income Tax v. Pemsel,  A.C. 531 (H.L.). ("Pemsel") the Statute of Charitable Uses was broken down into four headings under which a charitable purpose must fall. They are: (1) the relief of poverty; (2) the advancement of education; (3) the advancement of religion; and (4) certain other purposes beneficial to the community. If a charity’s "purpose" does not fall within one of these four headings, the charity cannot receive the benefit (i.e. tax free status and ability to give tax receipts) of being officially registered as a charity under the Income Tax Act.
The courts in Canada have strictly adhered to the charitable purpose headings contained in Pemsel (and by implication the preamble to the Statute of Charitable Uses written in 1601). In A.Y.S.A. Amateur Youth Soccer Association v. Canada (Revenue Agency) ("A.Y.S.A."), a 2007 decision of the SCC, a youth soccer association applied to the Canada Revenue Agency to become a registered charity pursuant to the Income Tax Act. The CRA refused to register the soccer association, and the soccer association appealed its ruling. In the end the SCC agreed with the Canada Revenue Agency, and refused to allow the soccer association to be registered as a charity.
In A.Y.S.A. the soccer association argued that its purpose was charitable as it fell under the fourth heading "certain other purposes beneficial to the community", arguing that the promotion of sport and physical fitness amongst youth was for the public benefit. The court rejected this argument, focusing on the fact that the soccer association had as its main purpose in its letters patent the "promotion of soccer" and to "increase participation in sport", goals that the court says are not charitable. In a way, because sport was not seen as "charitable" in 1601, the SCC could not accept it as "charitable" today.
I would like to think that in the 21st Century an organization that promotes health and physical activity amongst children would be considered "beneficial to the community". There is certainly no lack of information out there about the growing obesity rates amongst children, and the impact that it is having on their overall health. Perhaps it is finally time that we move away from our 17th Century definition of what a charity can be, and allow for a definition that is more in tune with life in the 21st Century.
Ian Hull – Click here for more information on Ian Hull.
I wrote yesterday about some of the factors you may want to consider when preparing an estate plan that contemplates a gift to a charity. What I didn’t address was the possibility that despite your best efforts, your beloved and well supported charity may cease to exist at some point between the creation of your estate plan and your death. As estate litigators, we don’t shy away from a cy pres application, and we may even find some enjoyment in the academic aspects of the process, yet, is that really where you want your hard earned funds to go?
Knowing how you want your money spent and who you want it to go to is clearly just part of the battle. There are many ways to ensure that your intentions are given effect; mostly they involve your detailed and thought out instructions and well drafted testamentary instruments. If you have any significant concerns about the viability of your favourite charity or the longevity of its current name, and are considering making a donation in excess of $250,000.00,options exist, including the Aquaduct Foundation which provides a vehicle for charitable donations, allowing you to control the purpose of your charitable giving. Lauren Storer provides some further insight into the benefits of such planning here.
At the end of the day, where your money goes is your decision, but don’t you want to know that your wishes will be carried out?
Nadia M. Harasymowycz – Click here for more information on Nadia Harasymowycz.
It isn’t a secret that the current passing down of wealth is the most significant of its kind in our history. With the definition of ‘family’ constantly changing and generations outliving those behind, the passing down of wealth may not be in the form we once anticipated. It seems, that in response to these various fluctuations in cultural expectations, testamentary dispositions to charities are on the rise. The only snag with that plan is that choosing a charity to leave your money to isn’t as easy as simply naming your kids.
I recently received the Canadian Donor’s Guide to fundraising Organizations in Canada (the “Guide”) which contains many interesting articles related to this field, as well as a listing of many charities seeking contributions. The following are a few of the likely considerations you should make before choosing a charity to donate to, as suggested by Mr. Malcolm Burrows in the Guide;
- How is the Charity going to use the Bequest?;
- Accountability of the Charity;
- Can the gift be designated for a particular purpose?; and
- Can a donor remain anonymous?
Although there are certainly many factors, both general and those specific to your charity which you may want to consider when making a donation, the above may start the ball rolling. For a more fulsome listing of questions and considerations, as well as a listing of charities, consider the Canadian Door’s Guide website as a resource.
Nadia M. Harasymowycz – Click here for more information on Nadia Harasymowycz.
Many of us give to charities by handing out pocket change at the door or by giving monthly gifts by automatic deposit. Some may leave bequests to their favourite charities in their Wills. For those who have a little more to give during their lifetime and beyond, there are additional ways to provide for planned giving to charitable organizations.
For example, the Charitable Remainder Trust (“CRT”) allows the capital of a gift to be given to a charity while the income earned is retained by the donor or some other person for their lifetime. The CRT can be an inter vivos trust given during the donor’s lifetime, or testamentary trust that comes into effect upon the donor’s death.
With a CRT, the donor establishes an irrevocable gift to a charity in return for a discounted tax receipt. The cash flow from income generated by the gift is fully taxable. The charity receives an irrevocable gift and upon the termination of the trust, will receive the remainder.
There are many advantages to a inter vivos CRT including:
Lifetime income to the donor.
An immediate tax receipt.
Avoidance of probate, saving probate fees and allowing the existence of the trust to remain private (unlike a Will, which is a public document).
The advantages of a testamentary CRT are:
Lifetime income to a loved one.
A tax receipt to the estate.
The trust is revocable and takes effect on death of the donor/testator.
The most important advantage of a CRT for the charity itself, especially for those created during the lifetime of the donor, is that it allows the charity to project the resources available to it and better plan for achieving its charitable objectives.
Sharon Davis – Click here for more information on Sharon Davis.