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 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.
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This week on Hull on Estates, Natalia Angelini and Umair Abdul Qadir discuss life insurance in the context of two articles, namely, “That’s Life Insurance” by Michael Grob, published in the June 2016 edition of Step Journal (http://bit.ly/29Yoc3Z) and “Charitable Donations: A Summary of Tax Considerations” by James M. Parks, published in the Canadian Donors Guide 2016/17 (http://bit.ly/29SAkAF).
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
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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When gifts are made by an individual’s estate, can the individual’s surviving spouse share the donation credits arising from that gift?
On January 27, 2015, the Canada Revenue Agency (“CRA”) made comment on this issue with regards to the current rules, as well as the rules that will apply starting in 2016. The CRA confirmed that its practice of allowing spouses and common law partners to share donation credits will indeed continue into 2016 and beyond. This practice was also codified in the 2014 Federal Budget.
The 2014 Federal Budget did introduce substantial changes to the tax treatment of gifts under a Will or beneficiary designation. Current CRA rules deem charitable gifts made on death as having been made by the deceased immediately before death, resulting in a tax credit to the donor’s final tax return. In cases where there is an excess credit, it can be carried back and used against the income reported in the prior year.
The new rules also propose that gifts made within 3 years of an individual’s death can be allocated to the available tax credits against the tax year of the estate in either: the year the gift was made, an earlier tax year of the estate or the last two tax years of the deceased prior to death.
Executors will be tasked with making the best decision in the circumstances but will likely welcome the increased flexibility. The CRA has further clarified that the changes do not allow a surviving spouse to claim gifts made by the deceased within 3 years of their death.
It is important to remember that only donations to registered charities qualify for tax credits and that the tax consequences of a gift depend on a list of factors. More information on which charities are registered and the tax consequences of certain gifts can be found here and here, respectively. As with any estate planning, a qualified professional should be consulted before making any changes.
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I recently bought a book titled “The Power of Half”. It is the story of one family’s decision to stop taking and start giving back. The adventure started when 14-year-old Hannah Salwen spotted a homeless man in her neighbourhood and at the very same time an expensive Mercedes car pulled up beside them. Hannah turned to her father, Kevin Salwen, and said that if that man had a less nice car, then the homeless man could have a meal. When Hannah was stopped in her tracks by the glaring disparity, her parents had to act on her urge to do something.
As a family, they decided to sell their dream home, downsize to a home half its size and give half of the proceeds to a worthy charity. Their efforts and contribution to “the Hunger Project” in Africa saved entire villages: Truly amazing and inspiring.
One of the things Hannah did was to work in a soup kitchen, where she served food to the homeless. Now I’m no Hannah, but I have had occasion (and will have more in the future) to serve breakfast to the homeless. I found it a very rewarding and enjoyable experience. An added bonus is that I was able to do it close to home in a familiar environment, surrounded by other lawyers (I’m not quite ready for Africa)!
TheLawyers Feed the Hungry program operates in Toronto, London, Ottawa and Windsor. In Toronto, hot meals have been served since 1998 in the Law Society of Upper Canada cafeteria at 130 Queen Street West, Toronto.
Program times are as follows:
- Wednesday Dinner at 5 p.m.
- Thursday Breakfast at 6:45 a.m (brown-bag lunch also provided).
- Friday Dinner at 5 p.m. (brown-bag lunch also provided).
- Sunday Breakfast at 10 a.m. (brown-bag lunch also provided).
The program runs year round thanks to donations to The Law Society Foundation and the assistance of volunteers.
Another source of support for the program comes from a yearly fund-raising event. This year’s event is called “Rockin’ the Courthouse” featuring lawyer rock bands such as “Tortious Conduct” and “The Soul Practitioner”. It is being held May 6, 2011 at the Courthouse restaurant.
Sharon Davis – Click here for more information on Sharon Davis.
Chinese real-estate tycoon, Yu Pengnian, announced this past April that he was donating the last $500 million of his fortune to his charitable foundation on philanthropy. He was asked by a reporter, whether his children were angry about his donations and responded by stating: “They didn’t oppose this idea, at least not in public.”
|It is not uncommon for billionaires to donate their fortune. For instance, Warren Buffet and Bill Gates started a campaign called "The Giving Pledge." At that time, they had four billionaires pledge to give away half of their fortune upon their death. Now there are 40. My colleague, Nadia Harasymowycz, recently blogged on this topic, which can be found here: Leaving it all to Charity – A Good Plan or an Estate Litigator’s dream.
The idea of giving away your fortune is a strong shift from the traditional idea of passing down your wealth, from generation to generation. Why this switch in estate planning? Yu stated: “If my children are competent, they don’t need my money. If they’re not, leaving them a lot of money is only doing them harm.”
Yu’s message to wealthy families put simply: “Too many wealthy parents focus on preventing their children from failing. But in doing so, they also deprive their children of the joys of self-made success.”
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Rick Bickhram – Click here for more information on Rick Bickhram.
The Smithsonian in Washington DC is the largest museum in the world and houses the legacy of an entire country. A little known fact is that this American national treasure is owed to a legacy of a different kind, a single charitable bequest by a man who had never even visited the United States.
British Scientist James Lewis Smithson, in a Will drawn three years before his death in Genoa Italy in 1829, bequeathed a life interest in his estate to his only living heir, his nephew Henry James Hungerford and thereafter to Hungerford’s heirs. In a charitable giftover, if Hungerford died without heirs, the estate was to go to the United States of America. When Hungerford died unmarried and without children just 6 years later, Richard Rush as agent for President Andrew Jackson claimed the money, which was awarded to the United States by the English Court of Chancery. The estate was worth half a million dollars in English Gold Sovereigns at the time, about $8M today.
It remains a mystery to this day, why Smithson left his fortune to a country with which he had no social or political ties. If you would like to read more about Smithson click here. If you would like to hear more about Smithson, click here.
The Will stated that the estate was to go to the "United States of America, to found at Washington, under the name of the Smithsonian Institution, an establishment for the increase & diffusion of knowledge among men." And the rest, as they say, is history – literally and figuratively!
Sharon Davis – Click here for more information on Sharon Davis.