Planned giving has been an issue of interest to the charitable sector for several years. The enthusiasm by which the sector has taken up the discussion has permeated the donor community. As a result donations by will are a common occurrence. But if the donor does not monitor developments with the charity, the gift could lapse and frustrate the donor’s intentions to support the organization.
If a donor names a charity which no longer exists as a beneficiary of her will the gift may be challenged. If successful, the funds may not go to any charitable organization as the donor intended. But gifts to a charity are not only part of fulfilling a person’s testamentary wishes but they can also be part of a tax plan designed to accomplish a number of objectives. A failure to make a gift as planned can have serious tax consequences to the (now frustrated) donor’s estate. And while a Court may be able to give effect to the donor’s intention to give to charity it may be unable to implement the tax planning that is part of it. The situation is made even worse when the intended organization still exists as a not for profit but not a charity. In that circumstance, depending on the wording of the will, the gift will still be made but no tax receipt issued. This is the worst possible scenario (besides the actual death of the testator) because now the estate has neither the cash nor the receipt.
One way planners can address the situation by inserting a clause in the will that the gift is contingent on the issuance of a tax receipt acceptable to the Canadian Revenue Agency. A clause of this nature would help ensure that the tax planning provisions put in place are not disrupted by an organization which has lost its charitable status yet continues to exist as a corporate entity. While we cannot know for certain how prevalent this situation is many organizations that are revoked may choose to keep their corporate status for the express purpose of collecting gifts by will. Added to this are annulled or suspended charities which may not have charitable status when the gift is made.
That a gift is made to a not-for profit as opposed to a charity would not frustrate the gift if there is no apparent intention that the gift be contingent on the issuance of a charitable receipt. While the donor’s intention to benefit the organization may be fulfilled, the tax planning in this situation would be frustrated. And absent some specific indication of the donor’s intent to benefit from the tax credits a Court would presumably be unable to help fulfill the donor’s plan.
A clause of this type is also useful in situations where the gift may be novel or where there is some doubt whether the CRA would accept the valuation provided. In those circumstances, if the CRA does challenge the gift and the organization is required to return it there may be alternate provisions which a donor may want to put in place to ensure that the charity is not unnecessarily impoverished.
Drache Aptowitzer lawyers draft wills and aid in drafting these types of clauses for high net worth individuals. For any questions on this please feel free to contact any one of our lawyers.
By Adam Aptowitzer
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