Non-charitable Purpose Trusts


Written on May 29, 2015 – 7:45 am | by Paul Fensom

Now that it is finally spring it has been is a great time to take my dog, Bailey, out for long walks. Some of the cemeteries in Toronto are great for this purpose. However, during my last walk there was nowhere to sit down for a brief rest which got me to thinking of the following problem. Of the following three possibilities, which scenario would be problematic? A trust to:

 
• maintain my dog in the style to which he has become accustomed,
• maintain my cemetery plot in perpetuity
• ensure funds will always be available to provide a place to relax in a park, like a park bench

 
This question faces two main obstacles in trust law. First, let me highlight some of the important facts about trusts. All formal trust accounts must have a Trustee(s), Trust property and Trust objects (the object of the Trust is the purpose or the beneficiary).

 
The terms of the Will or Trust agreement will establish the duties of the Trustee. The beneficiary(s) has rights to ensure the trust objects are carried out. In most cases the beneficiary(s) is a person or legal entity. This raises the first obstacle with respect to my three possible scenarios. Where the purpose does not involve a person or legal entity (maintaining my dog, maintaining my cemetery plot or providing a place to relax), who will ensure the trust objects are being carried out? Although Bailey’s a super-smart dog, I doubt he has the wherewithal to ensure his trust is being properly administered.

 
Fortunately, the law has identified a few exceptions to this lack of enforceability obstacle. Trusts for specific animals or pets, cemetery plot maintenance and charitable purpose trusts can indeed be valid. Enforceability of cemetery trusts and charitable purpose trusts is done by one or more branches of government.

 
The other obstacle to consider is the perpetuity rule. This rule (still applicable in Ontario and several other provinces) requires that a trust be terminated or distributed prior to 21 years beyond a life. If there is no specific person or legal entity named as a beneficiary in the subject trust then this rule, when applied, will require my trustee to distribute all the assets in trust to a person(s) or legal entity within the applicable time frame. The cemetery plot and a place for relaxation could very well be around for much longer than this. Again, there are some exceptions, most notably for cemetery maintenance trusts and charitable purpose trusts. I should note the difference between charitable purpose trusts and a non-charitable purpose trusts. A charitable purpose trust is a trust established for the benefit of a charity which is defined by legislation. Any non-charitable purpose like a social club or sports club and potentially my park bench does not enjoy the exemption from the perpetuity rule.

 
Therefore the answer to the question about which of the 3 scenarios would likely fail to be a proper trust is the maintenance of a park bench in perpetuity. At best, in Ontario, the park bench could be maintained for 21 years. This is not true in all jurisdictions and some progressive strides have been made to allow some types of non-charitable purpose trusts that could fund social or sports clubs, as an example.

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    Testamentary Freedom and the Indian Act Part II


    Written on May 28, 2015 – 9:02 am | by Jacob Kaufman

    After my blog post last week on Testamentary Freedom and the Indian Act, I was asked whether the limits on testamentary freedom for those deemed to be “Indians” under the Indian Act, R.S.C. 1985, c. I-5 only apply to “Indians” who live on reserves. To summarize the previous post, the Minister of Indian Affairs and Northern Development has jurisdiction over testamentary matters of deceased “Indians” including decisions on appointing or removing estate trustees, carrying out the terms of the wills and administering property in intestacies. The Minister also has a veto on any will made by an “Indian”.

    Do these limitations only apply to “Indians” living on reserves? No. However, there are important differences in how the government treats people who are ordinarily resident on reserves and who are not.

    Under subsection 4(3) of the Indian Act, these testamentary freedom restrictions do not apply to or in respect of any “Indian” who does not ordinarily reside on a reserve or on Crown lands “unless the Minister otherwise orders”. A person’s ordinary residence is where they had “his [or her]  ordinary or usual place of living” (Attorney General of Canada et al. v. Canard, [1976] 1 S.C.R. 170 (CanLII)). For example, an “Indian” who died while off the reserve for seasonal work (Canard, supra) or an “Indian” who died in an long-term care facility (Dickson (Estate of), 2012 YKSC 71 (CanLII)) were both found to still be ordinarily resident on a reserve.

    Where a person is not ordinarily resident on a reserve, practically speaking, when will the Minister decide to nonetheless apply the testamentary provisions of the Indian Act? It appears that the answer (at least for the BC region) is set out in the article “Aboriginal estates: Policies and procedures of INAC, BC Region” by Sherry Evans, a lawyer at the Aboriginal Law section of the Department of Justice (I thank Wendy Templeton for providing me with same). In her article, Ms. Evans sets out the following criteria for when the Minister will assume jurisdiction over the estate of a deceased person who is registered as an “Indian” or entitled to be so registered, but who was not ordinarily resident on a reserve or Crown land at the time of his or her death:

    1. there is a written request to the Minister from one or more of the heirs or beneficiaries;
    2. the estate does not contain off-reserve land;
    3. the only significant asset is reserve land;
    4. with the exception of the reserve land, the estate is of minimal value (generally, the value of the estate should not exceed $10,000);
    5. there are no complex issues that might expose the Minister to liability, such as potential litigation;
    6. there are no objections by any of the heirs or beneficiaries to the assumption of jurisdiction by the Minister; and
    7. one of the heirs or beneficiaries is willing and able to administer the estate, unless circumstances make it impractical to do so.

    While it is heartening that the Minister would only intervene where none of the heirs or beneficiaries object, internal policies that limit the exercise of the Minister’s discretion can be changed at any moment. The internal policies do not properly protect the rights of all indigenous peoples and the provisions limiting testamentary freedom for “Indians” should be repealed.

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      The TFSA and spousal contributions


      Written on May 27, 2015 – 7:00 am | by Derek de Gannes

      The most recent federal budget included a proposal to increase the annual contribution limit to a tax free savings account (TFSA) to 10,000. With this in mind, retirement savings strategies will more likely than not include the TFSA however caution must be exercised when making contributions.

      The Canada Revenue Agency (CRA) was asked if a spouse or common-law partner could make a cheque in the name of a financial institution to make a contribution to their spouse’s or common-law partner’s TFSA without disqualifying the account. The CRA confirmed that the TFSA contribution could only be made by its planholder.

      This would be the case if a person received a donation from his or her spouse or common-law partner and used the funds to make a contribution to his or her own plan. However, if the facts of the transaction showed that a TFSA contribution was made directly by the planholder’s spouse or common-law partner, this would cause the planholder’s TFSA to be deregistered. In other words the TFSA would behave like just another savings account with no sheltering of income from tax.

      No doubt the use of the TFSA in one’s retirement plan is sure to increase. Tread carefully when sourcing the funds to make the annual contribution to not run afoul of the rules to preserve the tax-free nature.

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