4 questions to ask before clients put charities in their wills

A bequest to a charity isn’t as straightforward as leaving money to a relative or a friend, but most clients don’t realize this. Here are four questions to ask clients before finalizing the details:

DO YOU HAVE THE CHARITY’S NAME RIGHT?

Sounds obvious, but estates lawyers frequently see court cases where the name appearing in the will is not the name of any known charity. Even if the name in the will resembles that of a known charity, a cautious executor will ask the court to determine whether that charity was in fact the intended recipient. If the court isn’t sure, it can declare the bequest void. The result? No donation, and your client’s estate has spent thousands on legal costs. To avoid this problem, verify the official name of a charity—either by checking its own website or the Canada Revenue Agency charities website: www.cra-arc.gc.ca/charities.

WHAT IF THE CHARITY STOPS OPERATING AT A FUTURE DATE?

Okay, the name’s right, but a charity can still shut down before the bequest becomes payable. While a well-drawn will usually includes a “gift over” in case a person dies before receiving a bequest, this is less likely in cases where a charitable beneficiary no longer exists. Raise this issue with the client. Otherwise, a court application will be necessary, with three possible outcomes:

• The court may order the bequest to be given to a successor charity, if one can be found;
• If there is no successor charity, the court may order the bequest to be given to another charity with a similar mandate, but only if the court can find a general charitable intention in the will; or
• If neither of these avenues is open to the court, it will declare the bequest void.

Stay Tuned

There are important income tax issues related to charitable bequests that we will be discussing, these issues affect

• 75,450 Canadian charitable organizations
• 5,050 Canadian public foundations
• 4,937 Canadian private foundations

Source: Canada Revenue Agency, December 31, 2010

WHAT’S THE PURPOSE OF YOUR CHARITABLE BEQUEST?

Usually, people know what purpose they want their donations to serve. So make sure they find out if that purpose is covered by their chosen charity’s mandate. Otherwise, the charity will either decline the bequest or take the position that a donor can’t impose conditions on an absolute gift.

IS IT A PERPETUAL GIFT?

A client may want his or her bequest to keep on giving—that is, only the income derived from the bequest will be available to the charity, with the capital being preserved indefinitely. Although trust law generally prohibits creation of a perpetual trust, a charitable-purpose trust is an exception. If that is the client’s intention, he should clearly state it in the will. As well, the client should make sure the bequest is large enough so the resulting income stream will represent a meaningful annual gift.