This month marks the beginning of the Will Power campaign, led by the CAGP Foundation and the Canadian Association of Gift Planners.
Will Power is designed to show Canadians the power they have to make a difference with their Wills by leaving charitable gifts.
Many Canadians feel that if they leave a charitable gift in their Will, it will take away from gifts and support for their loved ones, who they also wish to benefit as part of their estate plan. But according to CAGP and the CAGP Foundation, leaving even 1% of one’s estate to charity can still “have an enormous impact on your cause, while still leaving 99% of your estate to your family…You don’t have to choose between your loved ones and the causes you care about when planning your Will.” The Will Power website has a helpful legacy calculator, which can help with visualizing what it means to leave a gift to charity, and still be in a position to benefit your loved ones.
Some people may think that they need to have a very large estate to be able to make a meaningful gift to charity. But regardless of the size of the gift, it can still make a difference. Will Power estimates that if only 3.5% more ordinary Canadians included a gift in their Will in the coming decade, the result would be $40 billion in gifts to charitable causes.
Another aspect of charitable giving to consider is the tax benefit of doing so. Depending on the nature of your assets at the time of your passing, and any estate planning steps, there could be significant taxes payable on death. Making a testamentary gift to a cause that is important to you could result in a reduction of the amount of taxes to be paid.
For more information, and helpful links, you can check out this press release from Will Power.
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It is the start of a new year and a new decade. Many of us recently enjoyed some holidays and had much to eat and drink. Many of us are also feeling the lingering effects of this merriment. I figured that an uplifting, feel good read would be a nice way to start 2020. I was thus delighted to learn about Eva Gordon, and her estate.
Ms. Gordon passed away at the age of 105. She grew up on an orchard in Oregon, never graduated from college, and worked as a trading assistant at an investment firm in Seattle. In 1964, she married her husband, who was a stockbroker. They did not have any children together. Neither Ms. Gordon or her husband came from money, and they lived a modest life. Ms. Gordon’s godson, who was the Estate Trustee, joked that if Ms. Gordon and her husband went out for lunch or dinner, then they would make sure to bring their Applebee’s coupon.
From the salary that Ms. Gordon received from her employer, she purchased partial shares in numerous stocks, including oil and utility companies, and was an early investor in Nordstrom, Microsoft, and Starbucks. Unlike many at that time, Ms. Gordon held onto these valuable stocks. As a result of this shrewd investing, Ms. Gordon’s wealth increased considerably over the latter years of her life.
Instead of wasting away her money, in her Will, Ms. Gordon decided to bequeath $10 million to various community colleges, with about 17 colleges each receiving cheques for $550,000. Interestingly, no stipulations were put into place as to how the money was to be spent by the colleges. The colleges could do with the money as they wished. For many of them, it was one of the largest donations they had ever received.
For an interesting perspective on the impact of donations to modest, as opposed to elite, institutions, you should listen to Malcolm Gladwell’s Revisionist History podcast (episode 6).
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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.
Thank you for reading.
I recently came across this article on the Financial Times Adviser discussing estate litigation in the UK in general, and, in particular, a situation relating to the estate of Tracey Leaning. I thought the article was interesting as it touched upon a couple of topics that raised some thought-provoking points for me.
To briefly summarize, Ms. Leaning died in 2015 leaving a Will which provided that her entire estate was to be transferred to her partner, Richard, on the condition that he look after her three dogs. However, she had also made a prior Will leaving her entire estate to four charities. Somehow, the charities learned that, while they had previously been included as beneficiaries of Ms. Leaning’s estate, her last Will did not gift anything to them. They wrote to Richard to advise him that they intended to challenge the later Will. According to the article, it is not clear whether any proceedings have yet been commenced by the charities.
The first thing I wanted to touch on was the “pet trust” aspect of this situation. This topic was recently discussed in a paper by Jenny Pho of Dale & Lessmann LLP for the Law Society of Upper Canada’s Practice Gems: Probate Essentials program on September 29, 2017. The arrangement made by Ms. Leaning appears to be in the form of a cash legacy to a pet guardian, namely Richard, together with the condition precedent that Richard take care of her dogs. Generally this option for leaving money for the care of one’s pets would only be recommended if the testator trusts the chosen pet guardian to properly care for the pets, as once the funds have been bequeathed to the pet guardian, the testator loses control over how the funds can be used.
In this particular situation, Ms. Leaning not only left a specific legacy to Richard, but rather her entire estate. It is likely that, in doing so, she did not intend that her entire estate be used solely for the care of her dogs, but rather, she put her trust in Richard to care for the dogs generally, using funds from her estate as needed. According to the article, Ms. Leaning’s later Will had been prepared by Ms. Leaning herself, without seeking legal advice. However, had she not had a trusted individual to care for the dogs, the pet trust arrangements would likely have been much more complicated, and may have required legal advice in order to properly implement.
Secondly, I also found one of the alleged bases for the charities’ challenge to Ms. Leaning’s will interesting. As noted above, Ms. Leaning had allegedly prepared her later Will herself, without seeking legal advice. Additionally, the signature page of the Will, which had been stapled to the remaining pages, had apparently become detached, leading to questions as to whether there had been any additional pages that were missing at the time of Ms. Leaning’s death. If such a situation arose in Ontario, it’s not clear what the ultimate outcome would be. If the court could not determine how the Will should be interpreted based on the available pages of the Will itself, it could also consider indirect extrinsic circumstances that were known to the testator at the time the Will was made. However, as it is ultimately a question of interpretation, it would likely be up to the court to decide whether, taking all the facts into consideration, it is satisfied that the Will is complete and should govern the distribution of Ms. Leaning’s estate.
Had Ms. Leaning sought legal advice and assistance with respect to the preparation of her Will, this question would likely have been avoided by the standard use of simple page numbering to indicate that all pages are present and accounted for.
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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:
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#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!