All About Estates

Donor Advised Funds are iPads; Testamentary Charitable Trusts are Commodores

The iPad, Apple’s touch-screen tablet, is a device that exemplifies innovative technology. The trust world is slower at introducing novel technologies, however, innovation does occur. The donor advised fund is an example.

A donor advised fund is a trust for charitable purposes held by a public foundation. It enables the donor or a successor advisor to make non-binding recommendations on grants to other charities. The charity has no legal obligation to follow these recommendations, but, properly structured, there should be no conflict between donor wishes and the charity’s fiduciary duty. Guided by detailed documentation, the charity may also make discretionary decisions if the original wishes can no longer be satisfied.

Donor advised funds were created partly to address the inflexibility of traditional testamentary charitable trusts. As any experienced trustee knows, trusts reflect the time they were written and the skill of the drafting lawyer. Perpetual charitable trusts established by will, in particular, have a habit of outliving their purpose.

For example, a trust may name a charity that is now defunct, or a cause, such as polio, that is no longer pertinent. Or the inability to use capital to meet the annual disbursement quota obligation may put the charitable beneficiary on starvation rations and the trust offside. Variation is only available through the cy-près process, which involves a court application, and, in Ontario, the involvement of the Public Guardian and Trustee.

The paradox of the donor advised fund is its flexibility provides greater certainty that the donor’s charitable intentions will be served over time.

About Malcolm Burrows
Malcolm is a philanthropic advisor with 25+ years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. malcolm.burrows@scotiawealth.com