Written on October 9, 2013 – 6:09 am | by Malcolm Burrows
Private foundations are assumed to be durable entities. Ever since charitable trusts broke the “rule against perpetuities” in nineteenth century Britain the idea of a privately funded philanthropy has been associated with longevity. Canada Revenue Agency (CRA) data on private foundations, however, shows that 2,089 private foundations closed during the period 1991 to 2013.
There are currently 5,290 private foundations registered in Canada. Over the past decade the private foundation has been the fastest growing category of registered charities. Private foundations are being created at an unparalleled rate, but at times the operating challenges are under-estimated.
Let’s start with the 32 private foundations that were revoked by CRA for cause since 1998. Reasons cited include participation in tax shelters, lapse incorporation that invalidated the registration as a charity, receipting infractions, and private benefit. The most common reason listed is inadequate books and records, which is often CRA’s “gotcha” rationale masking some other complaint.
The next category contains the 987 private foundations that were revoked for failure to file the annual charity return or T3010. These foundations may reapply, but if a foundation stays on this list it is a sign of exhaustion. A failure to file is either deliberate, indicating an organizational death wish, or inadvertent, indicating a charitable mission that has faded or become too burdensome to pursue.
The largest cohort is the 1070 private foundations that filed for voluntary revocation. While CRA does not provide details, my experience has been that has been that these are foundations that are intentionally short-term, or run out of charitable steam, or never secure expected funding. The high hopes of founders may prove burdensome for future generations of directors/ trustees to implement. The monetary value of the foundation may be inadequate for the purpose, or there is no clear director/trustee succession plan, or, simply, there is no administrative support.
There is no shame in a private foundation running its course – all human institutions do. Often the most responsible action is dissolution and redirecting funds to other charities. That said, looking at the bones of the 2,089 closed private foundations suggests that there are challenges associated with operating private foundations. Estate plans that include private foundations need to consider both purpose and operations. Governance, succession planning, and management are necessary elements if the foundation is going to have a future as a standalone entity.