Preserving a charitable legacy

Most of your clients make philanthropy a part of their life, committing either time or money to assist others. Many of those philanthropists want to continue their charitable giving even if they become mentally incapable of doing so. In addition, many of those clients want to use charitable giving to leave behind an admirable legacy upon their death.

In Case Of Mental Incapacity

Every person should prepare a document (called a “Power of Attorney” in most provinces and territories and a “Mandate in Anticipation of Incapacity” in Quebec) to govern their financial and legal matters just in case they ever become mentally incapable. The representative (attorney or mandatory) appointed in that document administers the financial and legal affairs of the incapacitated person according to the powers given by law and powers, directions contained in the document.

In most provinces and territories, the law does not give the representative the power to use the assets of the mentally incapable person to make charitable gifts. Therefore, if clients wish to continue their charitable giving even if they become mentally incapable, it is very important their document governing financial and legal matters gives their representative the power to do so.

The document should also specify:

• The charities to which the representative can make gifts and any specific purposes for which those gifts are to be used by a recipient charity;
• The approximate amounts and preferred timing of the gifts; and
• that the financial needs of the mentally incapable client and his/her family are to receive priority over the making of charitable gifts.

Often clients will not want to restrict their representative to making gifts to a specific charity because of concern the charity may cease to exist in the future. Similarly, clients may not want to restrict the use of a charitable gift to a specific purpose because of concern that the charity may cease to include the purpose as part of its mandate. It may be that the purpose for which the charitable gift is used is more important to the client than the charity which receives the gift.

In those situations it may be appropriate for clients to establish a Charitable Giving Fund to receive their charitable gifts and, as part of establishing that Fund, to appoint one or more people to decide which charities will receive annual grants from the Charitable Giving Fund in the event of the client’s mental incapacity or death. With a Charitable Giving Fund, clients can include direction in their Power of Attorney or Mandate that their representative only make charitable gifts to the Fund and can then be fairly confident that the charitable purposes they wish to support will be honoured by the people appointed to make the grants.

Upon Death

One way in which a person can make a charitable gift upon death is to designate either a charity or a Charitable Giving Fund which he or she has established as the beneficiary for a specific asset (such as a life insurance policy, an RRSP or a RRIF). The asset then bypasses the estate and goes directly to the designated charity or Charitable Giving Fund.

If your client designates a charity as beneficiary, that charity is generally able to use the gift for the purposes it considers appropriate and your client has no control over that. However, if your client designates his or her Charitable Giving Fund as beneficiary, the decision maker can use personal knowledge of your client’s preferences to decide which charities will receive annual grants from the fund.

A second way in which a person can make a charitable gift upon death is to specify in their Will that a charity or a Charitable Giving Fund is to be one of the beneficiaries of their estate (which does not contain assets that pass by way of direct beneficiary designation). Wills appoint an executor and give that executor direction about how to administer the assets which pass into the estate. Directions to an executor respecting charitable gifts may include:

• to give a specific asset or a specific amount of money to a specified charity or Charitable Giving Fund;
• to give a specified portion or percentage of the estate to a specified charity or Charitable Giving Fund;
• to ask a recipient charity to use its gift for a specific purpose;
• to make the use of a gift by the recipient charity subject to specified terms;
• to hold a specified gift in trust, investing the capital and disbursing income and/or capital to a specified charity over a period of years; and
• to allocate estate assets when making the specified gift in such a way as to maximize tax benefits.

To ensure that charitable wishes are honored during mental incapacity or after death, your clients need to give special attention to their estate planning. As part of that planning process, it is essential they consult with an estate planning professional to discuss their wishes, to understand their options, and to put proper documentation in place.

Floyd Gradley is AVP, Mackenzie Investments Tax and Estate Planning Team, and an estate and trust lawyer.