Canada’s 85,896 registered charities have wide-ranging capacity, but these variations are often underappreciated. Estate donors – and their professional advisors – often focus on cause and tax status, but ignore organizational health indicators like history, funding, staffing, and governance. What should estate donors look for in a charity?
Although all registered charities can issue donation tax receipts, not all charities can handle significant estate donations or receive more complex assets. Two-thirds of charities have revenue of under $100,000 per annum and are largely run by volunteers. The top tier has over $1 billion in annual revenue – mostly from government and fees – and thousands of staff people.
But these are just the headline grabbing statistics. The day-to-day reality of individual charities is more subtle and by no means static. Donors should ask themselves: does the charity have a future and what will it be? Below are some thoughts about how to assess the health of charities before including them in your will:
Past and Future
Even established charities die. The Canadian Breast Cancer Foundation, for example, was a force in 1990s/2000s, but merged with the Canadian Cancer Society in 2017. Older mainline protestant churches have strong histories, but parishes are closing due to declining attendance. By contrast, universities are here to stay. It’s hard to predict the future of charities – especially post COVID – but just asking the question can lead to deeper due diligence.
The Canada Revenue Agency charity’s website contains the financial information of all registered charities. While it takes a bit of searching, it’s helpful to look at multi-year revenue trends. They can be very revealing. An excellent software called CharityCan provides this information in a simple report.
Governance is a nebulous concept for most people, but there are a few obvious indicators. Here are some. Look for a steady, independent volunteer board of directors. Check for indicators of board oversight. Does the charity publish an annual report? Is there an annual audit? If the charity has a founder, are they subject to controls? Does the charity have long-term or strategic plans? Are key documents available to the public on request?
A test of a charity’s capacity is experience. For example, does a charity have policies and processes to accept in-kind gifts, such as public or private securities? If the goal is to fund a particular project, such as a scholarship or preservation of ecologically-sensitive land, how does the charity manage the process? Readiness is all. A warning sign is the charity that doesn’t have staff or policies to undertake the desired charitable projects
A factor many donors fail to consider is their own life expectancy. How soon will the charity receive the estate donation? We plan today based on current assumptions about charity health and suitability, but what will it mean in 10 or 40 years? Regular will updates are advisable, as are structures like donor advised funds that allow easy changes to beneficiaries without a will update.
My personal experience is that donors often have an uncanny sense about which charities are worthy to name in their estate plan. They typically have a bias to the larger, established organizations because there is trust in cause, programs, leadership and the future. This is not to imply that smaller charities are unworthy, it’s just that they lack long-term capacity. These entities are less likely to receive large future donations as a result.