Contrary to public perception, it is quite common for charities to die. The majority of charities are small, volunteer-run entities and some run out of steam and are deregistered. Since 2011, over 7,536 charities have had their status revoked by Canada Revenue Agency for reasons ranging from exhaustion and mergers (which produce voluntary revocations), failure to file the annual return, or cause. What happens when there is a gift by will to one of these deregistered entities?
Here are three scenarios.
Intestacy When a charity is revoked it will probably cease to exist as both a registered charity and legal entity. The intestacy resulting from the failed gift will cause the funds to become part of the residue of the estate and be distributed to the residual beneficiaries.
Revoked but Intact Charities may be revoked by CRA, but the underlying corporation or trust remains in place. The legal beneficiary still exists despite the loss of status as a registered charity and the gift is enforceable, unless the will contains conditional language about CRA registration. A gift to an entity that is no longer operating as a charity is probably not what the donor had in mind.
Successor Organization In the case of charity mergers, there is often a successor organization that will be deemed to be the lawful beneficiary of any bequest to the original charity. This is sound legal practice that protects the successor charity and ensures gifts do not fail. In certain cases there may be issues of donor intention. In the case of a regional hospital merger, the donor may wish to support Town A and instead may end up supporting Region B. Or the donor wants to support St X church, but end up supporting the diocese after the church is closed.
A related issue is changing charity purpose or programs. If you think about it, making a charitable gift by will is an exercise in time travel. A donor plans a gift based on current reality and it is received – often decades later – by a charity that may have completely different programs or mission. The gap between intention and effect may be wide. True, charities have an obligation to evolve and respond to social needs over time, but a donor trying to address a specific issue may be frustrated.
Here’s an example of a solution. A donor wants to support land conservation programs in the area of her cottage with a gift by will, but there are currently no conservation charities active in the area. She chooses to establish a donor advised fund with a charitable purpose to address her vision. The fund is structured to create resources for land conservation in the future. Her fund would provide key strategic funding, potentially creating solutions that don’t yet exist and support for charities not yet established. It’s a prescient and active form of philanthropy, in effect, making the future.