All About Estates

Loosening Standards for Charitable Property

A crisis may change long-held views.  In reaction to the devastating economic effect of COVID-19 a couple of regulators have loosened their rules related to two different types of charitable property.  Will these changes be temporary or will they lead to long-term change?  And what effect does it have on estate donations?


The first announcement was from Ontario. In late March, the Public Guardian and Trustee (PGT) released temporary guidelines for Ontario charities to access the income and capital of restricted purpose and perpetual trust funds for operating expenses.  This can be now be done without a Section 13 application under the Charities Accounting Act, at least until after the pandemic is over.  The catch?  The (operating) charity must be in danger of closing.

The PGT attached a whack of conditions. These include: the charity must be facing the imminent threat of closure and bankruptcy, obligation to inform the PGT, unanimous board support, and a list of eligible operating expenses (salaries, building expenses, utilities).

Despite the caveats and complexity, it was a remarkably pragmatic move by a traditionally conservative regulator. The guidelines prioritize current charitable activity over the preservation of capital, which frankly just makes sense in what is shaping up to be the greatest period of economic upheaval for charities in the last 80 years.

North American Museums

The second announcement, released in early April, was from the United States. The Association of Art Museum Directors (AAMD), which represents 240 North American museums, allowed institutions access to restricted funds until April 10, 2022 for operating purposes. These funds included proceeds from deaccessioned artworks, which were previously limited for purchasing new works.

AAMD is a professional association, not a government regulator, but it has considerable influence over standards in the museum world. Its guidelines recommend speaking to donors in advance of making decisions – a P.R. and risk management approach, not trust law.

ArtNet News reports that some museums have liberally interpreted these looser rules.  The fall auction season will see $100 million in artwork for sale from U.S. museums.  The whale sales are three works from the Baltimore Museum that are being offered through Sotheby’s for $65 million.

ArtNet News reports that “Baltimore expects to funnel some of the windfall from its sale toward a broader equity initiative. The money will be used to maintain and increase salaries for staff throughout the museum; establish dedicated funds for Diversity, Equity, Accessibility, and Inclusion (DEAI) programs; eliminate admission fees for special exhibitions; and begin offering evening hours.”

Smaug the Dragon & Mortmain

These are all important initiatives, but they do represent a shift in traditional museum fiduciary and curatorial thinking. This is a growing debate. The most entertaining recent argument in favour of monetizing art is made by Malcolm Gladwell in two episodes of his podcast “Revisionist History.”  He likens museums to the treasure-loving, hoarder dragon, Smaug, from JRR Tolkien’s The Hobbit.  It’s a provocative listen.

In trust terms, both these positions emphasize current institutional operational health and public benefit over donor wishes and future value. There are a few key moments in trust and charitable history when the balance tipped against charities and the state seized property. Trustees, remember the concept of “mortmain”!

Donor Options

Some donors contemplating estate donations for endowments at operating charities or donations of art will welcome these changes. Others may strongly object to looser rules. In certain cases, donations may be made to foundations rather than operating charities to ensure trust conditions are respected. In others, gift restrictions may be tightened.

We’ll see what happens – and if these initiatives and thinking survive COVID.

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


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