Roadmap to Effective Testamentary Charitable Giving

  • February 27, 2024
  • Rami Aziz, Aziz Law Professional Corporation

On January 17, 2024, the OBA’s Trust and Estates section hosted a panel of experts to discuss the issues and opportunities presented in testamentary charitable giving. Program chair Gosha Sekhon of Sekhon Legal Services, started by inviting the speakers, Adam Aptowitzer from KPMG Law LLP, Hayley Peglar from WeirFoulds LLP, and Malcolm Burrows from Aqueduct Foundation to share their insights from the perspectives of the planning lawyer, the litigation lawyer, and the receiving charitable organization.

Gifts in Kind and the Importance of Adequately Investigating the Testator’s Assets

It is important to investigate the testator’s assets related to unique property. The idea is that drafting lawyers should turn their minds to the prospect that the testator may overlook various unique real and personal properties, which, if donated, could create tax credits to offset the increased tax on death due to the deemed disposition. It was noted that prior to planning the donation of a gift, it should be confirmed first that the charity will accept the gift. Additionally, the donation must be to a registered charity, not a person within the organization, to ensure the donation tax credit is not missed. Examples of unique property that a testator may overlook include loyalty program points, wine collections, private company shares, insurance policies and business inventory.

Gifts which are sometimes overlooked include the donation of certified cultural property and the donation of ecological property. Cultural property can include paintings, sculptures, books, manuscripts, or other objects, while an ecological gift is a donation of ecologically sensitive land or an eligible interest or right in the land. In the case of a cultural property, the first step is to find a designated institution (designated by the Minister of Canadian Heritage), such as a museum, which agrees to accept the item to be donated. The Canadian Cultural Property Export Review Board (CCPERB) must certify the gift. Ecological property must be certified by the federal Minister of Environment. One of the additional benefits of donating cultural or ecological property to a designated institution is that the donor does not realize the capital gains resulting from the deemed disposition associated with the donated property on death.

One last type of gift is a residual interest gift. This is an arrangement where the individual irrevocably donates real property or personal property to a charity while retaining the right to use the property for life or a set number of years. The advantage to this type of gift is that the individual retains the use of the property for the duration of their lifetime while receiving the charitable tax credit at the time the gift is made.

Strategies to Minimize Risks for Drafting Lawyers

The conversation then highlighted practices that open the door for litigation and the most reported reasons for claims against drafting lawyers, as shown by LawPro statistics. A frequently reported mistake is the incorrect naming of a charity in a will. Inadequate investigation about the correct name of the charity and whether the charity desired by the testator is, in fact, a registered charity can result in unwanted consequences. Another common error is not addressing what happens in a scenario where the charity no longer exists. A charitable bequest can certainly fail through misdescription; however, courts will strive to give effect to a testator’s intentions whenever possible by applying various principles of construction, including the legal doctrine of cy-près. This doctrine is a rescue valve to ensure the philanthropic intent of the testator is still carried out.

Registered Charity or a Foundation

The final round of the discussion addressed the following question: with estate donations, what are the planning considerations for a testator giving directly to a registered charity or a foundation?

The donor should be familiar with the charity, its purposes, and its objectives. If the donor wants to qualify their gift (requiring recognition or that the gift be used for a specific purpose), they should discuss and document their intentions, which should be achievable. Additionally, if requiring a gift be used for a specific purpose, the donor should ensure that the specified purpose represents a priority to the charity. In the case of gifts through a foundation, whether a private or a public foundation with donor-advised funds, a deed or an agreement with the foundation should be in place. In other words, the testator should ensure that the current charitable needs are met by negotiating the grant directly with the organization in advance.

Whether the donation is to a charity or to a foundation, the donor should consider an organization with a strong governance and a succession plan. This is advisable for two reasons, especially in cases of large donations. The first is that the donor should consider whether the value of the donation does commensurate with the organization’s size and capacity to ensure that the organization has the governance maturity to handle such a large donation. The second reason is to ensure the organization is well governed which in turn will assure the donor that the chosen organization will be thriving when the estate donation arrives in 15 or 30 years. One point to be considered by estate lawyers is that the will should be drafted to allow for in-kind gifts.

In conclusion, the speakers shared certain guidelines for client communication. They also highlighted the importance of careful investigation during the planning process to uncover any possibility of achieving tax efficiency upon death. Overall, the speakers provided valuable drafting considerations for estate lawyers seeking to assist their clients in achieving their philanthropic goals.

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