The Ontario Superior Court of Justice recently heard its first case on donor advised funds in The Joseph Lebovic Charitable Foundation v. Jewish Foundation of Greater Toronto. (PDF) This is the first time a court in Canada has discussed donor advised funds at length, and it sheds light on the court’s treatment of this increasingly popular philanthropic vehicle. Essentially the court upheld the regular conception of a donor advised fund – a donor can donate to the DAF and provide recommendations as to which registered charities should receive gifts from the DAF, but the donor cannot direct the DAF to make those gifts. The funds ultimately belong to the donor advised fund and the donor has relinquished control to the donor advised fund at the time the donation is made.
The case involves the Joseph Lebovic Charitable Foundation (“JLCF”), a private foundation founded by Joseph Lebovic, which was used to make donations to the Jewish Foundation of Greater Toronto (“Jewish Foundation”). The Jewish Foundation held the donations in a donor advised fund they called the “Lebovic Fund” and made grants from the fund in accordance with Joseph Lebovic’s recommendations.
After Joseph’s 2021 death, his brother, Wolf Lebovic as executor of Joseph’s estate and president of JLCF, demanded that the Jewish Foundation make certain grants from the Lebovic Fund pursuant to his direction. The Jewish Foundation refused, and Wolf Lebovic brought an action seeking an injunction requiring the Jewish Foundation to disburse funds as instructed by JLCF and restraining the Jewish Foundation from making distributions from the Lebovic Fund.
The Court declined to issue the injunctive relief sought, finding that there was not a serious issue to be tried. Specifically, the Court rejected Wolf Lebovic’s claim that there was an agreement between JLCF and the Jewish Foundation whereby the Jewish Foundation was required to comply with JLCF’s recommendations. The Court noted that “in order for charitable gifts to be valid, donors must divest themselves of all power and control over the property and transfer such control to the donee.” As such, there could be no agreement where the Jewish Foundation was forced to comply with JLCF’s recommendations. Likewise, the Court rejected the assertion that the Court should direct the Jewish Foundation to consider JLCF’s recommendations in good faith, stating that issuing such a direction would basically be giving the donor control over the donated property, and such an agreement would be unenforceable.
The Court also discussed the issue of whether Wolf Lebovic, on behalf of JLCF, could name himself as advisor to the Lebovic Fund. The Jewish Foundation argued that since Joseph did not create a succession plan for the Lebovic Fund, the money in the fund became part of the Jewish Foundation’s unrestricted funds. On the other hand, JLCF argued that Wolf Lebovic, as executor to Joseph’s estate and president of JLCF, had succeeded Joseph Lebovic as advisor to the Lebovic Fund.
In a clear endorsement of the discretion the Jewish Foundation has over the funds in the donor advised fund, the Court determined it was not even necessary to decide whether Wolf Lebovic was entitled to act as advisor to the fund, since JLCF does not have the right to require the Jewish Foundation to make any particular donations anyway.
Key takeaways from this case:
This is the first occasion in which a court in Canada has discussed in some detail donor advised funds. Prior to this case, the philanthropic sector was unsure how claims related to donor advised funds would be treated by the courts. This case unequivocally affirms the notion that donors to a donor advised fund relinquish all control over the funds when they make the donation. This case suggests that a donor who is unhappy with the donations made by his/her donor advised fund, would likely have no recourse in the courts, since the donor advised fund maintains ultimate control of the donations.
The case also discusses successor advisors. The decision notes: “The parties spent some time on this issue. The Jewish Foundation’s position is that because Joseph did not create a succession plan for the Lebovic Fund, the money in the fund became part of the Jewish Foundation’s unrestricted funds. JLCF’s position is that as Joseph’s executor and as president of JLCF, Wolf has succeeded Joseph as the advisor to the fund.” If one has a donor advised fund and would like a specific person to be the successor advisor, it is best to appoint that person during the donor’s lifetime, or the donor advised fund may not be prepared to allow someone else to hold that position.
Donor advised funds should take comfort in this case, which suggests courts are willing to uphold their control over donations in a donor advised fund. This case underscores the concept that a valid gift involves a relinquishment of control by the donor at the time of the donation. It should also serve as a caveat emptor for donors creating a donor advised fund: although it may have been your money that was donated and your recommendations that were previously followed, there is no obligation for the donor advised fund to continue following those recommendations.
There is a very big difference between a donor advised fund and setting up one’s own private foundation in which a donor may have control over the organization.
When making large philanthropic contributions, it is wise to obtain legal advice from lawyers who are very familiar with non-profit and charity law, and to understand the consequences, advantages and limitations of using different giving vehicles.
By Helene Mersky, lawyer at Blumbergs Professional Corporation
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