All About Estates

Estate Donations to Government

The title of this blog may provoke laughter, or perhaps, just head-shaking disbelief.  But estate donations to various levels of government do happen. The trick is to ensure that the donor’s intentions are carried out.

The Crown – i.e. federal and provincial governments – and Canadian municipalities are qualified donees under the Income Tax Act. Agents of the Crown are also generally included – for example, government agency or university crown foundation (a few may still exist). A gift to government provides the same tax benefits as a gift to a registered charity, but there are different planning challenges for estate donations.

Outright Donations

Occasionally a donor will make an outright, unrestricted gift to government. This can be done each year as a voluntary act when you file your taxes. I understand that few exercise this option. An unrestricted gift may also be made by will.  Also quite rare.

An unrestricted gift is easy, however.  It just needs to be delivered. How the money is spent is up the receiving government.  Not surprisingly most gifts to government have restrictions.

Checks and Balances

And therein lies the planning rub. Donations to government are exceptional acts and, in my experience, there are few internal systems within government to handle donations or restricted purposes.  Big entities and exceptional transactions are structurally a bad mix.  Thus, most estate donors who want to support a particular function performed by government – recreation, parks, the arts, etc. – use some form of trust. Traditionally testamentary charitable trusts have been deployed to introduce a measure of annual oversight.  Trusts keep the parties honest.

A public foundation with donor advised funds that has strong checks-and-balances in its annual granting process is another planning option.   A legacy fund is simpler and more flexible for the donor and administrator. And governments tend to be more responsive to an established public foundation than an individual trustee. If conditions are not met the annual grant can be redirected to another beneficiary to meet the intended purposes. That’s usually enough of an incentive to ensure annual accountability well into the future.

Paying Down Public Debt

Some Canadian provinces have pitched the idea of donations to pay down public debt.  (Some advice: my fundraising colleagues might be able to help craft a better case statement.)  There is an infamous 1928 testamentary trust in the UK with this purpose.  It was settled by an anonymous donor with £500,000, which was to be held in trust until there were sufficient funds to pay off the national debt.  The UK Government now wants the £400 million that has accumulated in the trust.  Regrettably, the UK public debt is now approximately £1.4 trillion.  It’s hard to predict the future.

About Malcolm Burrows
Malcolm is a philanthropic advisor with 30 years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. Views are his own. malcolm.burrows@scotiawealth.com

2 Comments

  1. Yoalnda Benoit

    December 13, 2019 - 5:52 pm
    Reply

    Thank you for your article, Malcolm. It was very interesting to learn how things work on that side of things when it comes to a bequest.
    The article caught my eye as I have seen two wills where the testator left a gift to the Canadian Government. Out of the two, one explained why this gift was important for him to make and he documented it in his will.
    The reason was this; once he came back to Canada from serving our country in a war (can’t remember which), he was unable to find work. The government stepped in and assisted him with UI. It meant so much to him at that time, that he felt it was a debt that he owed. He was happy to “pay it back” and then some, in order to help others in their time of need.
    It was very inspiring and heart warming for me to learn the “why” and obviously important to this man to explain his gift.

    • Malcolm Burrows

      December 13, 2019 - 6:09 pm
      Reply

      Yolanda –
      What a great story. Thank you for sharing. Despite my somewhat irreverent tone in the blog, these gifts are actually more common than we think. And there is many motivations. I had a great comment on Twitter that donations for municipal animal welfare programs are quite common. Malcolm

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